testing for nonlinear dependence in daily foreign exchange rates the purpose of this article is to investigate whether daily changes in five major foreign exchange rates contain any nonlinearities although the data contain no linear correlation evidence indicates the presence of substantial nonlinearity in a multiplicative rather than additive form further examination reveals that a generalized autoregressive conditional heteroskedasticity model can explain a large part of the nonlinearities for all five exchange rates copyright 1989 by the university of chicago

firm dynamics and institutional participation a case study on informality of micro enterprises in peru abstract using panel data on micro enterprises from peru we find evidence suggesting that firm dynamics explain formality where formality is recast as the firm s decision to participate in societal institutions the results suggest that differences in unobservable factors such as entrepreneurial ability contribute largely to differences in growth rates survival chances and societal participation after controlling for such unobserved heterogeneity we find that the probability of participation increases with firm size but not with years in business changes in participation status are sensitive to the initial size and growth trajectory of the firm

energy consumption and economic growth revisited does the size of unrecorded economy matter abstract we analyze the long run relationship between energy consumption and real gross domestic product gdp in turkey taking into account the size of unrecorded economy since in developing countries mainly due to the unrecorded economic activities the official gdp is not measured correctly the investigation of the linkage between energy consumption and official gdp may not give reliable results in this study empirical results for the case of turkey over the period 1970 2005 suggest that there is a long run equilibrium relationship between the officially calculated gdp and energy consumption besides using the error correction modeling technique we find out that unidirectional causality runs from official gdp to energy in both short and long runs however when we take into account unrecorded economy we detect neither cointegration nor causality between energy consumption and true gdp these empirical findings imply that first energy conservation policies can be implemented in order to reduce greenhouse gas emissions without any adverse effect on the recorded economic activities second the production function in the unrecorded economy is not stable furthermore economic policies to combat unrecorded economy may not serve as a complement to energy conservation policies

cooperation dynamics in repeated games of adverse selection abstract we study cooperation dynamics in repeated games with markovian private information after any history signaling reveals information that helps players coordinate their future actions but also makes the problem of coordinating current actions harder in equilibrium players may play aggressive or uncooperative actions that signal private information and partners tolerate a certain number of such actions we discuss several applications of our results we explain the cycles of cooperation and conflict observed in trench warfare during world war i show that price leadership and unilateral price cuts can be part of an optimal signaling equilibrium in a repeated bertrand game with incomplete information and show that communication between cartel members may be socially efficient in a repeated cournot game finally we show that the welfare losses disappear as the persistence of the process of types increases and the interest rate goes to zero

the informal sector and tax on employment a dynamic general equilibrium investigation abstract this paper elaborates on the evolution of the informal sector vis a vis the evolution of agricultural and formal sectors in a developing country economy in process of growth the analytical contribution of this essay extends the ramsey theory of growth into a framework that includes an informal sector and household preferences that display engel effects in agricultural and in informally produced goods besides showing that the informal sector s importance diminishes over time as the country s economy grows the results from the model demonstrate that a country can successfully reduce its informal employment by reducing tax on employment in the formal sector

informal rules using institutional economics to understand service provision in turkey s spontaneous settlements turkey s spontaneous settlements gecekondus house half the urban population and face infrastructure deficiencies that reduce quality of life and economic productivity while increasing the vulnerability of the urban poor this article reports on research that used the new institutional economics to examine the formal and informal institutional frameworks for infrastructure provision in gecekondus in theory formal rules should create incentives that produce behaviour however a key finding was that rules are generally irrelevant in fact in the absence of credible formal rules pressures arise that help shape informal rules which then result in behaviour this has important implications for both institutional theory and daily practice

heterogeneity and peer effects in mutual fund proxy voting this paper studies voting in corporate director elections we construct a comprehensive data set of 2 058 788 mutual fund votes over a two year period we find systematic heterogeneity in voting some funds are consistently more management friendly than others we also establish the presence of peer effects a fund is more likely to oppose management when other funds are more likely to oppose it all else being equal we estimate a voting model whose supermodular structure allows us to compute social multipliers due to peer effects heterogeneity and peer effects are as important in shaping voting outcomes as firm and director characteristics

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

monotone equilibria in bayesian games of strategic complementarities for bayesian games of strategic complementarities we provide a constructive proof of the existence of a greatest and a least bayes nash equilibrium each one in strategies that are monotone in type our main assumptions besides strategic complementarities are that each player s payoff displays increasing differences in own action and the profile of types and that each player s interim beliefs are increasing in type with respect to first order stochastic dominance e g types are affiliated the result holds for general action and type spaces single multi or infinite dimensional continuous or discrete and no prior is assumed we also provide the following comparative statics result the greatest and least equilibria are higher if there is a first order stochastic dominant shift in the interim beliefs we apply this result to strategic information revelation in games of voluntary disclosure

equilibrium characterization of networks under conflicting preferences in this work we characterize equilibrium introduced in configurations for networks with conflicting preferences we use the model hernandez et al 2013 to study the effect of three main factors the strength of individual preferences the level of integration in the network and the intensity of conflict in the population our aim is to understand how likely is it that social outcomes are either those in which preferences dominate choices or those in which some individuals sacrifice their preferences to achieve consensus with others our results show that the stronger individual preferences the harder to achieve consensus in choices however in cases where the payoff ratio is less extreme full coordination consensus is always an equilibrium finally if the level of conflict is low individual preferences become less relevant and all players choosing what they prefer is not an equilibrium anymore

the underground economies tax evasion and information distortion list of contributors preface introduction edgar l feige part i the meaning measurement and policy implications of the underground economies 1 the meaning and measurement of the underground economy edgar l feige 2 information distortions in social systems the underground economy and other observer subject policymaker feedbacks robert r alford and edgar l feige 3 policy illusion macroeconomic instability and the unrecorded economy robert t mcgee and edgar l feige 4 how large or small should the underground economy be bruno frey part ii the underground economy in western developed nations measurement in different laboratories 5 monetary perspective on underground economic activity in the united states richard d porter and amanda s bayer 6 the unrecorded economy and the national income accounts in the netherlands a sensitivity analysis g a a m broesterhuizen 7 assessing the underground economy in the united kingdom michael o higgins 8 the underground economy in the federal republic of germany a preliminary assessment enno langfeldt 9 the underground economy in sweden ingemar hansson 10 the irregular economy of italy a survey of contributions bruno contini 11 the hidden economy in norway with special emphasis on the hidden labor market arne jon isachsen and steiner strom 12 canada s underground economy rolf mirus and roger s smith 13 the underground economy in france philippe barthelemy part iii the underground economy under central planning 14 the soviet second economy in a political and legal perspective f j m feldbrugge 15 second economy and socialism the hungarian experience istvan r gabor bibliography

the informal sector in developed and less developed countries a literature survey the main goal of this study is two fold 1 to provide ageneral overview of the contributions to the literature on theinformal sector with a special focus on the public choiceapproach and 2 to compare these contributions across twoinstitutionally different types of countries developed andless developed developing and transition countries thepaper focuses on the criteria used to define the informalsector the relationship between the formal and informaleconomy tax evasion and public choice analysis it isstressed throughout this paper that the distinction betweenthe two types of countries is of key importance

conditional heteroscedasticity in time series of stock returns evidence and forecasts this article presents new evidence about the time series behavior of stock prices daily return series exhibit significant levels of second order dependence and they cannot be modeled as linear white noise processes a reasonable return generating process is empirically shown to be a first order autoregressive process with conditionally heteroskedastic innovations in particular generalized autoregressive conditional heteroskedastic garch 1 1 processes fit to data very satisfactorily various out of sample forecasts of monthly return variances are generated and compared statistically forecasts based on the garch model are found to be superior copyright 1989 by the university of chicago

uniform selection in global games abstract this paper brings together results which are required in order to extend the global games approach to settings where the game structure is endogenous more precisely it shows that the selection argument of carlsson and van damme global games and equilibrium selection econometrica 61 5 1993 989 1018 holds uniformly over appropriately controlled families of games those results also give proper justification for the inversion of limits which is often implicit in applied work taking comparative statics on the selected risk dominant equilibrium

communication in cournot oligopoly abstract this paper studies communication in a static cournot duopoly model under the assumption that the firms have unverifiable private information about their costs we investigate the conditions under which the firms cannot transmit any information through cheap talk and show that when these conditions are violated it may be possible to construct informative cheap talk equilibria if the firms can communicate through a third party communication can be informative even when informative cheap talk is impossible we exhibit a simple mediated mechanism that ensures informative communication and interim pareto dominates the uninformative equilibrium for the firms

existence of equilibrium in large double auctions abstract we show the existence of a pure strategy symmetric increasing equilibrium in double auction markets with correlated conditionally independent private values and many participants the equilibrium we find is arbitrarily close to fully revealing as the market size grows our results provide strategic foundations for price taking behavior in large markets

making it underground comparative material on the informal sector in western market economies this paper examines the informal economy and its relationship to commonly held theories of industrial development although these theories stem from very different intellectual traditions their general assumption has been that widespread informal economic activities are primarily a feature of third world economies in which they function as a refuge from destitution such activities are presumably destined to desappear with the advance of modern industry led growth evidence is presented that indicates that these assumptions including the identification of informality with conditions in the less developed countries are wrong alternative interpretations of the resilience of these activities in third world countries despite rapid industrialization and their continuity and apparent revival in the advanced economies and discussed

aggregate comparative statics abstract in aggregative games each player s payoff depends on her own actions and an aggregate of the actions of all the players many common games in industrial organization political economy public economics and macroeconomics can be cast as aggregative games this paper provides a general and tractable framework for comparative static results in aggregative games we focus on two classes of games 1 aggregative games with strategic substitutes and 2 nice aggregative games where payoff functions are continuous and concave in own strategies we provide simple sufficient conditions under which positive shocks to individual players increase their own actions and have monotone effects on the aggregate the results are illustrated with applications to public good provision contests cournot competition and technology choices in oligopoly

strategic disclosure of research results the cost of proving your honesty in situations where a biased sender provides verifiable information to a receiver i study how strategic reporting affects the incentives to search for information research provides series of signals that can be used selectively in reporting i show that the sender is strictly worse off when his research effort is not observed by the receiver he has to conduct more research than in the observable case and in equilibrium discloses all the information he obtained however this extra research can be socially beneficial and mandatory disclosure of results can thus be welfare reducing finally i identify cases where the sender withholds evidence and for which mandatory disclosure rules become more attractive in 2002 editors of eleven of the most prestigious medical journals announced that they would only publish the results of studies that were entered at their start in a publicly available database 1 pharmaceutical firms conduct clinical trials to test the efficacy and potential side effects of their drugs and to compare them to competitors products publishing results of studies is an efficient way to influence doctors prescriptions and patients tastes however firms can conduct multiple trials and select the most favourable results the system of mandatory disclosure adopted by medical journals is a response to the fear of such selective publishing 2 it makes the research effort of pharmaceutical firms more observable and will influence both the information they disclose and the amount of research they perform in the present article i study the interaction between the research and disclosure decisions which is an essential element in many settings the adoption of mandatory disclosure rules has subtle effects and i discover that leaving the research effort unobservable can sometimes be socially beneficial 3 i study the interaction between research and disclosure in a model where a biased sender searches for information and communicates it strategically to a receiver who will

who matters in coordination problems we consider a common investment project that is vulnerable to a self fullling coordination failure and hence is strategically risky based on their private information agents who have heterogeneous investment incentives form expectations or sentiments about the project s outcome we nd that the sum of these sentiments is constant across dierent strategy proles and it is independent of the distribution of incentives as a result we can think of sentiment as a scarce resource divided up among the dierent payo types applying this nding we show that agents who benet little from the project s success have a large impact on the coordination process the agents with small benets invest only if their sentiment towards the project is large per unit investment cost as the average sentiment is constant a subsidy decreasing the investment costs of these agents will free up a large amount of sentiment provoking a large impact on the whole economy intuitively these agents insensitive to the project s outcome and hence to the actions of others are inuential because they modify their

shadow economies at times of banking crises empirics and theory this paper investigates the response of the shadow economy to banking crises our empirical analysis based on a large sample of countries suggests that the informal sector is a powerful buffer which expands at times of banking crises and absorbs a large proportion of the fall in official output to rationalise our evidence we build a dynamic stochastic general equilibrium model which accounts for financial and labour market frictions and for nominal rigidities in line with the empirical literature on the shadow economy we assume that in the informal sector access to external finance is limited and the production technology is relatively more labour intensive following a banking shock in the official sector the model predicts a large negative transmission to the unofficial economy that substantially dampens the overall effect of the shock

nonlinear dynamics and stock returns simple deterministic systems are capable of generating chaotic output that mimics the output of stochastic systems for this reason algorithms have been developed to distinguish between these two alternatives these algorithms and related statistical tests are also useful in detecting the presence of nonlinear dependence in time series in this article the authors apply these procedures to stock returns and find evidence that indicates the presence of nonlinear dependence on weekly returns from the center for research in security prices value weighted index copyright 1989 by the university of chicago

robust comparative statics in large dynamic economies we consider infinite horizon economies populated by a continuum of agents subject to idiosyncratic shocks this framework contains models of saving and capital accumulation with incomplete markets in the spirit of works by bewley aiyagari and huggett models of entry exit and industry dynamics in the spirit of hopenhayn s work and dynamic models of occupational choice and search models as special cases robust and easy to apply comparative statics results are established with respect to exogenous parameters as well as various kinds of changes in the markov processes governing the law of motion of the idiosyncratic shocks

blockbusting brokers and the dynamics of segregation abstract the paper presents a dynamic model of neighborhood segregation where fee motivated real estate brokers match sellers optimally either to minority or to white buyers in an initially all white neighborhood real estate brokers thus either keep the neighborhood in a steady state white equilibrium or trigger racial transition by matching sellers to minority buyers a process called blockbusting racial transition leads to a higher rate of property turnover in the neighborhood once the fraction of minorities has reached a tipping point but racial transition also leads to lower prices and this is the trade off faced by a broker the model shows that with multiple brokers blockbusting profit per broker is lower as brokers free ride on each other s groundbreaking efforts the model predicts that racial transition will happen in the neighborhood when i the number of brokers is limited ii racial preferences lie in an intermediate range iii the arrival rate of offers is intermediate otherwise real estate brokers steer white households toward white buyers

equilibrium models displaying endogenous fluctuations and chaos abstract this paper surveys current developments in dynamic general equilibrium theory concerned with conditions under which endogenous fluctuations are possible existing contributions are divided into two classes the larger one consists of models with a unique perfect foresight equilibrium while the second includes models where equilibrium is indeterminate and the set of equilibria involving endogenous fluctuations includes sunspots equilibria while the two classes of models involve oscillations of different natures and with different policy implications we show that both are consistent with optimizing behavior and competitive equilibrium

strategic information revelation we analyze the problem in which agents have non public information and are to play an asymmetric information game the agents may reveal some or all of their information to other agents prior to playing this game revelation is via exogenously specified certifiable statements the equilibria resulting from various revelation strategies are used to determine equilibrium revelation of information sufficient conditions are provided for complete revelation of all private information a number of examples are provided illustrating when revelation will or will not occur in commonly analyzed games many economic problems are characterized by the presence of both strategic behaviour on the part of individuals and by asymmetric information models encompassing both of these characteristics have been used successfully to examine questions in many fields usually using the concept of bayesian nash equilibrium as the solution concept typically the agents information is given exogenously and is fixed throughout the analysis modelling the information structure as static is appropriate for some problems but not for all in particular situations that are inherently dynamic most economic encounters allow for some interchange between the agents before the outcome is settled irrevocably in such circumstances it is possible that at least one or more of the agents possessing non public information may be able to reveal part or all of his information to one or all of the other agents in the economy during the course of their contact to the extent that such a communication is believed by the other agents the priors of the other agents will change and we will have what is in essence a new asymmetric information game new in

heterogeneous network games conflicting preferences abstract in many economic situations a player pursues coordination or anti coordination with her neighbors on a network but she also has intrinsic preferences among the available options we here introduce a model which allows to analyze this issue by means of a simple framework in which players endowed with an idiosyncratic identity interact on a social network through strategic complements or substitutes we classify the possible types of nash equilibria under complete information finding two thresholds for switching action that relate to the two player setup of the games this structure of equilibria is considerably reduced when turning to incomplete information in a setup in which players only know the distribution of the number of neighbors of the network for high degrees of heterogeneity in the population the equilibria is such that every player can choose her preferred action whereas if one of the identities is in the minority frustration ensues

is the business cycle characterized by deterministic chaos abstract tests are conducted on u s macroeconomic data for the presence of low dimensional deterministic chaos where deterministic chaos is defined as in grandmont s 1985 walras bowley lecture or in brock 1986 the idea is to test for evidence of endogenous instability causing the business cycle low order autoregressions are hard to reject with our methods evidence of chaos is weak but our tests may be too weak to detect it evidence of nonlinearity is present in employment 1950 i to 1983 iv unemployment 1949 i to 1982 iv monthly post war industrial production and pig iron production 1877 1937

chaos significance mechanism and economic applications imagine a bargaining model say involving diplomats negotiating tariff levels or a disarmament treaty in which each party has been instructed by higher headquarters to respond to each new offer by her opposite number with a counteroffer that is to be calculated from a simple reaction function provided in advance both negotiating parties are prohibited from revealing their own reaction functions to the other if the perfectly deterministic sequence of offers and counteroffers that must emerge from these simple rules were to begin to oscillate wildly and apparently at random the negotiations could easily break down as each party not understanding the source of the problem came to suspect the other side of duplicity and sabotage yet all that may be involved as we will see is the phenomenon referred to as chaos a case that is emphatically not pathological but in which a dynamic mechanism that is very simple and deterministic yields a time path so complicated that it will pass most standard tests of randomness chaos has become a subject of great interest to specialists and nonspecialists alike besides economics it has entered the literature of geometry physics ecology and meteorology it has been written about at length in the new york times magazine and scientific american as well as technical publications this article seeks to describe what it is how it works and what it means for economics

correlated equilibrium as an expression of bayesian rationality if it is common knowledge that the players in a game are bayesian utility maximizers who treat uncertainty about other players actions like any other uncertainty then the outcome is necessarily a correlated equilibrium random strategies appear as an expression of each player s uncertainty about what the others will do not as the result of willful randomization use is made of the common prior assumption according to which differences in probability assessments by different individuals are due to the different information that they have where information may be interpreted broadly to include experience upbringing and genetic makeup copyright 1987 by the econometric society

purification of bayes nash equilibrium with correlated types and interdependent payoffs abstract we establish purification results for bayes nash equilibrium in a large class of bayesian games with finite sets of pure actions we allow for correlated types and interdependent payoffs and for type dependent feasible action sets the latter feature allows us to prove existence and purification results for pure bayes nash equilibria in undominated strategies we give applications to auctions global games and voting to illustrate the usefulness of our results

characteristics of households in the informal sector of an emerging economy using the case study of trinidad and tobago we investigate the socio economic demographic and attitudinal characteristics of households that participate in the informal sector of an emerging economy and their perception of the risk of detection by tax authorities while doing so data are gathered from a cross sectional field survey covering 570 households results using multinomial logit and ordered probit models suggest that households are motivated to participate in the informal sector when members spend little time in formal sector activity believe that taxes are too high and their incomes are too low have dependents to support and believe that the resulting tax evasion will go undetected their perception of the risk of detection by the tax authority is determined largely by the income they earn in the formal sector and the extent of government bureaucracy prevailing there

analyzing the determinants of the shadow economy with a separate approach an application of the relationship between inequality and the shadow economy this paper suggests a separate approach to analyze the determinants of the shadow economy se it is applied to investigate the relationship between inequality and the se on a cross section of 118 countries we disentangle the effect of inequality on the se ratio by estimating both direct and indirect effects on both the numerator and denominator of the ratio separately we find that an increase in inequality increases the se ratio this positive correlation is primarily due to a reduction in the official gdp rather than an increase in the se

technology adoption hysteresis and absence of lock in we introduce a simple model of technology adoption with overlapping generations of players technologies generate network effects and players are both backward and forward looking we use results from the supermodular games literature to guarantee equilibrium existence and uniqueness in line with the empirical literature the equilibrium adoption path exhibits hysteresis and technologies cannot lock in we characterize the expected time of adoption which can be seen as a measure of technology dominance

the urban informal sector in uruguay its internal structure characteristics and effects abstract the literature on third world urbanization has focused increasingly on the informal sector as a mechanism to explain first the survival strategies of the poor excluded from regular employment and second the strategies of formal firms to bypass regulatory constraints and reduce costs this paper pursues these lines of research in a special context namely that of uruguay a small country which followed a protective labor policy for many years but reversed it during the 1970s and early 1980s data come from a sample of 700 households in montevideo which are representative of the low income neighborhoods that comprise approximately two thirds of the city s population interviews were held in 1983 1984 the analysis focuses on the following issues 1 the proportion of individuals and households who participate in the informal economy 2 the types of informality that exist in both principal and secondary occupations 3 the effects of informal employment on income 4 differences in age sex and education between different types of workers 5 changes in informal employment over time implications of findings for general definitions and hypotheses about the informal sector are examined the relationship of results to the neoliberal experiments attempted in uruguay between 1973 and 1984 is discussed

statistical inference based upon non linear science abstract this paper discusses testing for the presence of deterministic chaos and presents probems surrounding such research statistical inference methods arising from the study of non linear dynamics are presented along with research utilizing these methods the general goal of these inference methods is to test for evidence of hidden structures in economic time series data which may lead to a greater understanding of how the economy functions while evidence of significant non linear structure has been demonstrated in many economic and financial time series precisely how important these structures are to economic science is a relevant issue

estimation of real gdp and unrecorded economy in turkey based on environmental data abstract this paper estimates the real gross domestic product gdp and unrecorded economy for turkey using the kalman filter technique using different tests most of the research articles on energy policy investigate the causal relationship between energy consumption and gdp for different countries on the other hand other studies on climate change try to show the effects of both energy consumption and gdp on carbon dioxide co2 emission since the unreported economy has an important weight in developing countries where the recorded or official gdp suffers from considerable measurement problems investigation of the relationship between the recorded gdp and energy consumption may lead to biased results in this paper the economic variables gdp country population as well as environmental variables co2 emission forest area are used in order to estimate gdp which is an unobserved variable in our model the results clearly indicate that first the true gdp in turkey that our model estimates is higher than the observed recorded gdp in the whole period of observation 1973 2003 and the size of unrecorded economy varies between 12 and 30 percent of the observed gdp second the gap between the true gdp and the observed gdp has an increasing trend third if the change in gdp per primary energy supply is smaller than the change in co2 per primary energy supply then there may exist unrecorded economy

promises and conventions an approach to pre play agreements abstract i analyze how informal agreements can be sustained by moral emotions with regard to a large class of two player games specifically i assume that people feel guilty if they breach an agreement and that the guilt increases according to the degree of the harm inflicted on the other a central insight is that it is easier to sustain efficient informal agreements if actions are strategic complements than if they are strategic substitutes i complement this general insight by studying two specific cases where negotiators face uncertainty about the breach of the agreement i show that while the optimal agreement in a game with strategic substitutes must compromise on surplus maximization and efficiency the optimal agreement in a game with sufficiently strong strategic complements tends to maximize both the surplus and the probability of compliance especially if the game is symmetric

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

equilibrium in sealed high bid auctions there is a voluminous theoretical literature on sealed high bid auctions auctions in which bids are sealed and the high bidder pays his bid see for example vickrey 1961 myerson 1981 riley and samuelson 1981 milgrom and weber 1982 matthews 1983 maskin and riley 1984 holt 1980 cox smith and walker 1988 a critical property on which this literature relies is the existence of equilibrium in which buyers bidding strategies are monotonic in their types this enables the analyst to perform comparative statics as the distribution of types changes and to compare the welfare properties of the high bid auction with those of other auction institutions one case in which the existence of monotonic equilibrium is readily established is that in which buyers types are distributed smoothly independently and symmetrically in this case there exists a symmetric equilibrium one in which all bidders share the same bidding behaviour as a function of their valuations and this bid function is the solution to a first order differential equation

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

history expectations and leadership in the evolution of social norms we study the evolution of a social norm of cooperation in a dynamic environment each agent lives for two periods and interacts with agents from the previous and next generations via a coordination game social norms emerge as patterns of behaviour that are stable in part due to agents interpretations of private information about the past influenced by occasional commonly observed past behaviours for sufficiently backward looking societies history completely drives equilibrium play leading to a social norm of high or low cooperation in more forward looking societies there is a pattern of reversion whereby play starting with high low cooperation reverts towards lower higher cooperation the impact of history can be countered by occasional prominent agents whose actions are visible by all future agents and who can leverage their greater visibility to influence expectations of future agents and overturn social norms of low cooperation

the rise and decline of nations economic growth stagflation and social rigidities the years since world war ii have seen rapid shifts in the relative positions of different countries and regions leading political economist mancur olson offers a new and compelling theory to explain these shifts in fortune and then tests his theory against evidence from many periods of history and many parts of the world

business culture and tax evasion why corruption and the unofficial economy can persist abstract this paper shows that business and tax inspection culture can create multiple equilibria in bad equilibria high cheating and corruption increases in penalties or auditing can have perverse impacts and increase cheating the source of the multiple equilibria is the externalities created by business and tax inspection cultures as tax evasion and corruption become more common they become more acceptable and their cost is lowered a third externality that between firms and inspectors is the source of the perverse effect more cheating by firms is good for bribe taking inspectors and more bribe taking inspectors are good for cheating firms

endogenous information acquisition in bayesian games with strategic complementarities abstract this paper studies covert or hidden information acquisition in common value bayesian games of strategic complementarities using the supermodular stochastic order to arrange the structures of information increasingly in terms of preferences we provide novel easily interpretable and verifiable though restrictive conditions under which the value of information is increasing and convex and study the implications in terms of the equilibrium configuration increasing marginal returns to information leads to extreme behavior in that agents opt either for the highest or the lowest quality signal so that the final analysis of this complex game simplifies greatly into that of a two action game this result can rationalize the complete information game as an endogenous outcome finally we also establish that higher quality information leads players to select more dispersed actions in the bayesian game

endogenous price expectations as reference points in auctions the paper models auctions with bidders who have reference dependent payos the reference point is endogenised as the expected price of the good in the auction the model predicts that in equilibrium bidders both overbid and underbid in comparison to the standard bidding function without reference dependent utility the model predicts that more bidders overbid than underbid and that bidders bid more aggressively as the number of bidders or the reserve price increases finally it is shown perhaps surprisingly that revenue equivalence continues to hold between rst and second price

newsvendor competition under asymmetric cost information abstract we study the newsboy duopoly problem under asymmetric cost information we extend the lippman and mccardle 1997 of competitive newsboy to the case where the two firms are privately informed about their unit costs the market demand is initially split between two firms and the excess demand for each firm is reallocated to the rival firm we show the existence and uniqueness of a pure strategy equilibrium and characterize its structure the equilibrium conditions have an interesting recursive structure that enables an easy computation of the equilibrium order quantities presence of strategic interactions creates incentives to increase order quantities for all firm types except the type that has the highest possible unit cost consequently competition leads to higher total inventory in the industry however contrary to intuition this is only true when the firms are non identical a firm s equilibrium order quantity increases with a stochastic increase in the total industry demand or with an increase in his initial allocation of the total industry demand we demonstrate our model and results in an application in a dual sourcing procurement setting using data that obtained from a large manufacturing company finally we provide a full characterization of the equilibrium of the game for the special case of uniform demand and linear market shares

is environmental income reporting evasive in household surveys evidence from rural poor in laos abstract literature has consistently reiterated that the self employed non poor underreport their business income to tax authorities and in household surveys in this work we measure the extent to which poor households engaging in illegal environmental activities underreport income in laos we use a two year panel data and apply the engel curve to detect and estimate the reporting gap we further use a switching probit regression to identify the factors of income underreporting and its impact on income poverty outcomes results show that on an average rural households who earn at least a quarter of their income from the environment underreport by over 50 in household surveys resulting in overestimation of income poverty moreover we find that a perceived threat to food security drives rural poor to engage in illegal environmental extraction

supermodularity and complementarity in economics an elementary survey the literature on supermodular optimization and games is surveyed from the perspective of potential users in economics this methodology provides a new approach for comparative statics based only on critical assumptions and allows a general analysis of games with strategic complementarities the results are presented in a simplified yet rigourous manner without reference to lattice theory for the special case of one dimensional parameter and actions sets with the emphasis being on wide accessibility detailed applications are presented for well known models of consumer behavior monopoly pass through bertrand and cournot competition strategic r d search and matching wherever appropriate useful tricks for applications and comparative comments are inserted

warrant exercise dividends and reinvestment policy in this paper we examine sequential exercise strategies by warrantholders and the gain from hoarding warrants we analyze several obstacles to acquiring large blocks in order to exploit sequential strategies first we identify several reinvestment policies for which sequential exercise is not advantageous thereby eliminating the gain from hoarding however sequential exercise strategies may be advantageous for monopoly or oligopoly warrantholders even absent dividends because using exercise proceeds to repurchase stock or to expand the firm s scale increases the riskiness of an equity share second oligopoly warrantholders can receive a smaller warrant value than perfectly competitive warrantholders suggesting a potential cost to unsuccessful hoarding

coordination failures and the lender of last resort was bagehot right after all the classical doctrine of the lender of last resort lolr elaborated by bagehot 1873 asserts that the central bank should lend to illiquid but solvent banks under certain conditions several authors have argued that this view is now obsolete in modern interbank markets a solvent bank cannot be illiquid this paper provides a possible theoretical foundation for rescuing bagehot s view our theory does not rely on the multiplicity of equilibria that arises in classical models of bank runs we built a model of banks liquidity crises that possesses a unique bayesian equilibrium in this equilibrium there is a positive probability that a solvent bank cannot find liquidity assistance in the market we derive policy implications about banking regulation solvency and liquidity ratios and interventions of the lender of last resort furthermore we find that public bailout and private bail in involvement are complementary in implementing the incentive efficient solution and that bagehot s lender of last resort facility must work together with institutions providing prompt corrective action and orderly failure resolution finally we derive similar implications for an international lender of last resort ilolr jel g21 g28

monotone equilibria in signaling games abstract we examine the monotonicity of the sender s equilibrium strategy with respect to her type in signaling games we show that when the sender s return from the receiver s action depends on her type the spence mirrlees condition cannot rule out equilibria in which a higher type sender chooses a strictly lower action than a lower type we provide sufficient conditions under which all equilibria are monotone which require that the sender s payoff is decreasing in her action is increasing in the receiver s action and has strictly increasing differences between her type and the action profile we apply our sufficient conditions to education signaling advertising and warranty provision

asymmetric information information externalities and efficiency the case of oil exploration in this article we examine the efect of private information and information externalities on the ex post eficiency of investment in oil exploration we show that too much drilling tends to occur ifjirms believe that the area is likely to contain a sizeable pool of oil and too little drilling occurs if the opposite is true bargaining with well defined property rights to the information externality can eliminate underinvestment but overinvestment remains a problem because firms have an incentive not to disclose their private information

some evidence concerning macroeconomic chaos abstract an empirical assessment of a linear stochastic perspective for canadian macroeconomic time series is presented the methods used are based on the mathematics of chaos present evidence suggests that low order deterministic chaos does not provide a satisfactory characterization of the data the absence of significant nonlinear structure for the investment and unemployment series is of particular note in light of past findings with american data the degree to which the use of a time trend can impose a pseudo structure on the data is illustrated

defining and estimating underground and informal economies the new institutional economics approach abstract a taxonomy of underground economies is elaborated based on the new institutional approach to economic development members of formal sectors confront different sets of transformation and transaction costs than do members of informal sectors and these differences are regarded as crucial to the development process the paper distinguishes illegal unreported unrecorded and informal economies and examines the conceptual and empirical linkages among them alternative micro and macro methodologies for measuring underground activities are reviewed and evaluated including census and survey procedures discrepancy and monetary methods when you cannot measure your knowledge is meager and unsatisfactory lord kelvin inscription at harper library university of chicago

robust comparative statics for non monotone shocks in large aggregative games a policy change that involves a redistribution of income or wealth is typically controversial affecting some people positively but others negatively in this paper we extend the robust comparative statics result for large aggregative games established by acemoglu and jensen 2010 49th ieee conference on decision and control 3133 3139 to possibly controversial policy changes in particular we show that both the smallest and the largest equilibrium values of an aggregate variable increase in response to a policy change to which individuals reactions may be mixed but the overall aggregate response is positive we provide sufficient conditions for such a policy change in terms of distributional changes in parameters

chaotic behaviour in exchange rate series first results for the peseta u s dollar case abstract we test for the presence of deterministic chaos on daily data for the spot and forward spanish peseta u s dollar exchange rates the finding of a chaotic behaviour in the series allows us to make short run predictions which in general outperform those from the random walk model

monotone comparative statics under uncertainty this paper analyzes monotone comparative statics predictions in several classes of stochastic optimization problems the main results characterize necessary and sufficient conditions for comparative statics predictions to hold based on properties of primitive functions that is utility functions and probability distributions the results apply when the primitives satisfy one of the following two properties i a single crossing property which arises in applications such as portfolio investment problems and auctions or ii log supermodularity which arises in the analysis of demand functions affiliated random variables stochastic orders and orders over risk aversion

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

adoption externalities as public goods abstract a public good problem arises naturally in situations characterized by positive externalities or negative externalities for positive externalities agents furnish a public good by taking an action similarly for negative externalities agents furnish a public good by not taking an action we examine these externalities in a binary choice problem i e adoption externalities in each case there is a potential role for government intervention even when equilibrium transfers are not allowed since one equilibrium pareto dominates all others we analyze the positive and normative features of equilibria in these models and we explore the possibility of useful government intervention

self protection strategic interactions and the relative endogeneity of disease risks self protection is a key behavior that influences infectious disease risks spillovers in disease protection create different types of strategic interactions under certain conditions multiple nash equilibria may arise with the possibility of coordination failure involving excessively low self protection in which case individuals expectations of others efforts determine which outcome arises in prior studies assumed technical relations between self protection and infection probabilities drove the strategic interactions we demonstrate that strategic relations can be endogenously determined and depend on the relative endogeneity of risk rer defined here as the degree to which individuals can take control of their own risks in a strategic setting the potential for coordination failure may arise when rer is sufficiently small whereas larger levels of rer may eliminate this possibility to ensure larger levels of self protection we find that imposing a behaviorally dependent indemnity may increase rer to eliminate the possibility of coordination failure we apply our analysis to the problem of livestock disease and illustrate the theory using a numerical example of the 2001 united kingdom foot and mouth disease epidemic

aggregation and imperfect competition on the existence of equilibrium we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result provides general conditions under which there exists a pure strategy price equilibrium for any number of firms producing any set of products this includes products with multi dimen sional attributes in addition to the proof of existence we provide conditions for uniqueness our analysis covers location models the characteristics approach and probabilistic choice together in a unified framework to prove existence we employ aggregation theorems due to prekopa 1971 and borell 1975 our companion paper caplin and nalebuff 1991 introduces these theorems and develops the application to super majority voting rules we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result is that there exists a pure strategy price equilibrium for any number of firms producing any set of products in addition to the proof of existence we provide conditions for uniqueness our model both unites diverse strands of the earlier literature and opens up uncharted areas for future analysis in particular we expand the traditional one dimensional framework to allow for multi dimen sional product differentiation our approach involves twin restrictions on consumer preferences one on individuals preferences the other on the distribution of preferences across society these are generalizations of the restrictions supporting 64 majority rule presented in caplin and nalebuff 1988 to prove existence we apply a new technique of aggregation this technique is valuable in a variety of other problems in the companion paper we use the aggregation result to generalize our earlier work on 64 majority rule and to characterize the relationship between the distribution of human capital and the distribution of income caplin and nalebuff 1991 there are additional applications in statistics and in search theory we begin with a brief review of the early literature on imperfect competition describing in more detail the existence problem and previous solutions section 3 presents our twin assumptions and shows that they cover many standard cases in section 4 we introduce the aggregation theorem and use it in the analysis of demand functions the proof of existence of equilibrium is in section

an idea in good currency and how it grew the informal sector abstract the informal sector is an exceedingly fuzzy concept which has come into wide use because it seemed to address the interests of a number of very diverse groups those interested in growth planning those interested in alleviating poverty marxist structuralists and those interested in economic accounting the use of the concept has been helpful in directing attention to phenomena previously ignored but adopting the term obscures analysis of central issues and is counterproductive we should rather specify critical policy issues and design field research around these

on the existence of monotone pure strategy perfect bayesian equilibrium in games with complementarities abstract many important economic situations such as auctions and signaling games can be modeled as dynamic games of incomplete information with strategic complementarities of actions and types in this paper we extend the results of athey 2001 and reny 2011 from static bayesian games to dynamic environments with observable actions providing conditions that guarantee the existence of monotone equilibria in types in such games a feature that distinguishes this environment from those of previous results is the endogeneity of beliefs which can complicate continuity of payoffs needed to find a fixed point to address this we perturb the strategies of the game which pins down beliefs while preserving continuity of payoffs we then provide conditions which guarantee that there will exist monotone best replies to monotone strategies of one s opponents in a dynamic environment enabling verification of existence by merely looking at the primitives of the model

tanzanian formal sector workers participation in informal production a theoretical model is developed explaining formal sector workers participation in the informal sector a reduced form informal sector participation function is derived from a specific utility function a specific informal sector production function and a specific informal sector earnings function the participation function can be estimated consistently and provides a solution to the problem that informal sector wages in developing countries are hard to observe a sample of tanzanian formal sector workers is used to estimate the participation function a majority of tanzanian formal sector workers participate in informal production participation in informal production is inversely related to household income to living in dar es salaam and to being a mother with small children participation is positively related to age and multiple job holding seems to play a very different role in the transition from work to retirement in tanzania compared to industrialized countries