war and natural resource exploitation abstract we build a theoretical framework that allows for endogenous conflict behaviour i e fighting efforts and for endogenous natural resource exploitation i e speed ownership and investments while depletion is spread in a balanced hotelling fashion during peace the presence of conflict creates incentives for rapacious extraction as this lowers the stakes of future contest this voracious extraction depresses total oil revenue especially if world oil demand is relatively elastic and the government s weapon advantage is weak some of these political distortions can be overcome by bribing rebels or by government investment in weapons the shadow of conflict can also make less efficient nationalized oil extraction more attractive than private extraction as insecure property rights create a holdup problem for the private firm and lead to a lower license fee furthermore the government fights less intensely than the rebels under private exploitation which leads to more government turnover without credible commitment to future fighting efforts private oil depletion is only lucrative if the government s non oil office rents are large and weaponry powerful which guarantees the government a stronger grip on office and makes the holdup problem less severe

strategic behavior in contests comment almost by definition contests involve strategy this is especially true in contests between unevenly matched contenders in a recent article avinash dixit 1987 explored strategic commitment in contests between a favorite and an underdog the favorite is defined as the player whose chance of victory exceeds one half at the nash equilibrium an underdog s chance is less than one half dixit concludes that if the favorite has the opportunity to move first then he will overcommit effort compared with the nash equilibrium an important implication of the favorite overcommitting effort is that strategic behavior leads to greater social costs see gordon tullock 1980 the opposite holds if the underdog has the opportunity to move first this paper demonstrates that the favorite will never overcommit effort given endogenous order of moves the favorite finds it advantageous to wait until the underdog moves surprisingly the underdog s best strategy is not to wait but to make the first move throwing the first punch the equilibrium order of play is for the underdog to move before the favorite in this equilibrium one never observes overcommitment of effort consequently extending dixit s model to allow for endogenous order of moves suggests that strategic behavior in contests will lead to undercommitment compared with nash behavior

retail payments new contributions empirical results and unanswered questions abstract we offer a selected survey of retail payments and suggest areas where additional research would prove useful after summarizing eight papers presented at a recent norges bank central bank of norway payment conference and published in this volume we show how they and many of the other papers presented there have contributed to the payments literature we also illustrate how institutional and other differences across countries led to different payment arrangements historically which now due to technological innovation affecting bank costs have made payment arrangements across countries more homogeneous

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

effort levels in contests with two asymmetric players a contest is a situation in which players compete with one another by expending effort to win a prize examples abound firms compete by spending rd 26 krueger 14 posner 20 rogerson 23 appelbaum and katz 1 hillman and riley 12 hirshleifer 13 ellingsen 8 nitzan 18 and baik 2 3 have studied rent seeking contests lazear and rosen 15 o keeffe viscusi and zeckhauser 19 and rosen 24 have examined performance incentives associated with reward schemes riley 22 has analyzed the war of attrition and auctions dixit 7 has considered strategic commitments in contests with different applications these are only a part of the literature on the theory of contests despite the vast literature however the effects of asymmetries between players have not been clarified except by harris and vickers 11 who analyze in a patent race model the strategic consequences of asymmetries the purpose of this paper is to examine the effects of asymmetries between two players on individual and total effort levels in a model with a logit form probability of winning function effort levels expended by the players deserve attention effort in a rent seeking contest is interpreted as social costs and thus total effort level is a measure of economic efficiency effort in an r d contest is interpreted as r d expenditures and thus effort levels determine the expected date of invention we focus on asymmetries between the players resulting from their different valuations of the prize their different abilities to convert effort into probability of winning or both such asymmetries are common in contests for example people in different locations may receive different

payment card rewards programs and consumer payment choice abstract by using a unique data set that contains detailed information about consumer payment choice and consumers attitudes toward each payment method we estimate the effects of payment card rewards on consumer choice of payment methods our approach allows us to control for consumer heterogeneity we find the effects of rewards to be statistically significant across five retail types our policy experiments suggest that for the sub population who hold both credit and debit cards removing rewards would increase their share of paper based payment methods i e cash and checks measured in terms of in store transactions by no more than 4 percentage points

strategic behavior in contests reply in my 1987 paper i modeled contests where the probability of each player winning a prize depends on all players efforts and examined the first order benefits to one player of making a commitment to a strategy slightly different from his nash equilibrium strategy in the special case of a two player symmetric contest i found that this first order effect was zero michael r baye and onsong shin 1999 have taken the useful further step of finding the second order conditions which ensure that the local stationary point is a local maximum they also find an example where such a commitment has a third order benefit whether this is of any substantive economic interest remains to be seen i used the phrase no local effect to mean zero first order effect which was clearly a sloppy use of language but some such restriction on the use of local is essential if the phrase x has no local effect on f x at x 5 a were to mean that all derivatives f a are zero then a taylor series expansion would show that f x 5 f a for all x and no local effect would be the same as no global effect most importantly symmetric contests were only a very special case of my model the focus was on the much more interesting and more general situation of asymmetry among the players where one player s commitment to a strategy different from his nash equilibrium strategy does bring him a first order benefit the favorite benefits by committing to excessive effort and the underdog from committing to too little others for example kyung h baik and jason f shogren 1992 have extended the analysis to endogenize the order of moves and found that it can be in the interests of both contestants to let the underdog make the commitment in my view these are the more interesting economic issues to do with contests than are third order effects in the symmetric case

strategic restraint in contests abstract economic policy is modelled as the outcome of a political game between two interest groups the possible ex post realized outcomes in the game correspond to the proposed policies in the literature policy proposals are exogenous we extend such games by allowing the endogenous determination of the proposed policies in a first stage the groups decide which policy to lobby for and then in a second stage engage in a contest over the proposed policies our main result is that competition over endogenously determined policies induces strategic restraint that reduces polarization and in turn wasteful lobbying activities

endogenous timing in games of commercial policy this paper analyzes various equilibria associated with intervention in trade in the context of noncooperative policy games with endogenous timing it is shown that while the subgame perfect equilibria in quota games always involve sequential play that is not necessarily the case in tariff games one implication of the analysis is that in contrast to existing theory trade is not eliminated in quota games another implication is that quotas are not necessarily inferior to tariffs the paper also examines the ways policy leaders and followers differ in their preferences over instruments and allows the choice over instruments to be determined endogenously this paper analyses various equilibria associated with intervention in trade in the context on non cooperative policy games with endogenous timing it is shown that while the subgame perfect equilibria in quota games always involve sequential play that is not necessarily the case in tariff games one implication of the analysis is that in contrast to existing theory trade is not eliminated in quota games another implication is that quotas are not necessarily inferior to tariffs the paper also examines the ways policy leaders and followers differ in their preferences over instruments and allows the choice over instruments to be determined endogenously

nominal income targeting in an open economy optimizing model abstract this paper presents simulation results regarding the performance of nominal income targeting a monetary policy rule that sets interest rates in response to deviations of nominal gdp growth from a target path the macroeconomic model is one in which agents solve dynamic optimization problems with rational expectations but in an environment with slow price adjustments in the present version consumption choices reflect habit formation and the economy is open to international flows of goods and securities when calibrated to quarterly us data the model s results suggest that nominal income targeting performs well in relation to inflation targeting and taylor rules

contests with multiple rounds this paper studies contests where players have the flexibility to add to their previous efforts after observing their rivals most recent effort in an intermediate stage it is found that 1 contrary to previous findings the stackelberg outcome where the underdog leads and the favorite follows cannot be an equilibrium 2 there are multiple subgame perfect equilibria all occurring on the underdog s usual one shot reaction function in between and including the one shot cournot nash and stackelberg outcome with the favorite leading 3 the total equilibrium effort is typically greater than or equal to what a one shot cournot nash play would predict and 4 in settings where players can choose whether or not to disclose their early actions to the rival both the favorite and the underdog disclose in equilibrium applications in sports lobbying and r d races are discussed

shipwrecks and treasure hunters we examine dynamic search as a game in which two rivals explore an island for a hidden prize of known value in every period until its discovery the players decide how much of the unsearched area to comb if a player finds the prize alone he wins it and the game ends players have a per period discount factor and costs proportional to the area they search first as a benchmark for efficiency we solve the one player search problem second in the two player setting we show that typically there is inefficient over search a result akin to the tragedy of the commons however for players with intermediate levels of patience there is the possibility of inefficient under search as players incorporate the expected future payoffs in their current search decisions finally with patient players several counterintuitive results can arise for example players might be better off searching a larger island or looking for a less valuable prize

assessing nominal income rules for monetary policy with model and data uncertainty nominal income rules for monetary policy have long been debated but two issues are of particular recent interest first there are questions about the performance of such rules over a range of plausible empirical models especially models with and without explicit rational inflation expectations second there are questions about the performance of these rules in real time using the type of data that is actually available contemporaneously to policy makers rather than final revised data this paper determines optimal monetary policy rules in the presence of such model uncertainty and real time data uncertainty and finds only a limited role for nominal output growth

a general model of rent seeking for public goods this paper generalizes the model of collective rent seeking over a public good expanding the rent seeker s consumption bundle to include preferences over the public good and a private good our results suggest collective rent seeking is positively related to group size although free riding exists within a group there is not a one for one tradeoff in addition rent seeking increases with wealth finally total effort expended by both groups increases if either group increases in membership size except in the case of an extremely lopsided contest the key condition underlying these results is that the marginal utility of the public good is not inversely related to the private good

the strategic equivalence of rent seeking innovation and patent race games abstract we establish the strategic equivalence of a variety of rent seeking contests innovation tournaments and patent race games the results allow us to disentangle negative and positive externalities and to apply theorems and results intended for rent seeking games to other games and vice versa we conclude with several examples that highlight the practical utility of our results

on the endogeneity of cournot nash and stackelberg equilibria games of accumulation abstract we characterize equilibria of games with two properties i agents have the opportunity to adjust their strategic variable after their initial choices and before payoffs occur but ii they can only add to their initial amounts the equilibrium set consists of just the cournot nash outcome one or both stackelberg outcomes or a continuum of points including the cournot nash outcome and one or both stackelberg outcomes a simple theorem that uses agents standard one period reaction functions and the one period cournot nash and stackelberg equilibria delineates the equilibrium set applications include contribution oligopoly and rent seeking games

efforts in two sided contests the degree of rent dissipation is studied in extended two sided contests that in volve two types of efforts while usual contestants expend resources in trying to win the contested prize potential recipients of the rent seeking efforts also participate in the con test this is due to uncertainty regarding the source of power in the contest that induces the bureaucrats to expend resources to increase their share in the rent seeking efforts by try ing to appear as the party controlling the allocation of the prize we show that the existing theoretical and empirical studies are incomplete and may underestimate the extent of rent dissipation

the value of commitment in contests and tournaments when observation is costly we study the value of commitment in contests and tournaments when there are costs for the follower to observe the leader s behavior in a contest the follower can pay to observe the leader s effort but cannot observe the effectiveness of that effort in a tournament the follower can pay to observe the effectiveness of the leader s effort but not the effort itself we show that this distinction matters significantly when observation is costly the value of commitment vanishes entirely in sequential and endogenous move contests regardless of the size of the observation cost by contrast in tournaments the value of commitment is preserved completely provided that the observation costs are sufficiently small

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

cash burns an inventory model with a cash credit choice abstract a dynamic cash management model is analysed where agents choose whether to pay with cash or credit at every point in time in the model credit usage depends on the current stock of cash a novel result that matches recent micro evidence on households payment choices the optimality of such a decision rule is novel and cannot be obtained by models where cash credit decisions are made at the beginning of each period we discuss how to use the model to account for cross country evidence on the intensity of credit usage and for several statistics on the size and frequency of cash withdrawals the model is used to assess the household s welfare cost of phasing out cash

endogenous timing in contests with delegation i introduction contests with delegation where each player hires a delegate to expend effort or resources on the player s behalf to win a prize are common 1 an example is litigation between a plaintiff and a defendant in which each litigant hires an attorney who expends his effort to win the lawsuit on behalf of his client another example is a rent seeking contest in which each firm hires a lobbyist who expends his effort to acquire a monopoly or a procurement contract from the government on behalf of his client yet another example is a patent contest in which each firm hires a group of independent researchers or university professors who conduct research to obtain a patent on behalf of their employer delegation is attractive to players because they each can use superior ability by hiring a delegate with more ability than herself and achieve strategic commitments through delegation in such contests with delegation we believe delegates decide endogenously when to expend their effort after signing delegation contracts indeed pursuing their self interest the delegates may well endogenize the order of their moves and communicate it with each other before they expend their effort we believe also that players take it into account when designing their contracts for the delegates that the delegates will endogenize the order of their moves it is these ideas that motivate this paper accordingly the purpose of this paper is to systematically study contests with delegation in which delegates decide endogenously when to expend their effort after signing delegation contracts and before they expend their effort we study two player contests with delegation focusing on not only the equilibrium delegation contracts between players and their delegates but also the equilibrium orders of the delegates moves specifically we set up and analyze the following three stage game in the first stage two players each hire a delegate and they simultaneously announce their contracts written with their delegates each player s contract specifies how much her delegate will be paid if he wins the contest and how much if he loses it in the second stage each delegate decides when to expend his effort and the delegates announce their decisions simultaneously in the third stage the delegates expend their effort according to their decisions in the second stage to win the prize on behalf of their employers we show that in equilibrium the delegate hired by the higher valuation player chooses his effort level after observing his counterpart s and his expected payoff is greater than that of his counterpart this advantage of the delegate of the higher valuation player can be explained by the fact that his employer the higher valuation player offers better contingent compensation as it will be defined in section ii to him than the lower valuation player does to her delegate we compare the outcomes of the endogenous timing framework the three stage game presented above with those of the simultaneous move framework the game which is the same as the three stage game with the exception that the delegates choose their effort levels simultaneously and this order of their moves is given exogenously an interesting result is that each player offers her delegate a better contract in the endogenous timing framework than in the simultaneous move framework another interesting result is that unless the valuation for the prize of the higher valuation player is significantly greater than that of the lower valuation player then each delegate s expected payoff is greater in the endogenous timing framework than in the simultaneous move framework whereas each player s expected payoff is less in the endogenous timing framework than in the simultaneous move framework in summary pursuing their self interest the delegates decide endogenously when to expend their effort given contracts between the players and the delegates

war labor tournaments and contest payoffs abstract when prizes change with effort contestants adjust effort to mitigate that change net payoffs remain unchanged respectively can be larger if prizes are linear concave in effort contest designers can facilitate desired outcomes by making the prize concave in effort

financial innovation and the transactions demand for cash we document cash management patterns for households that are at odds with the predictions of deterministic inventory models that abstract from precautionary motives we extend the baumol tobin cash inventory model to a dynamic environment that allows for the possibility of withdrawing cash at random times at a low cost this modification introduces a precautionary motive for holding cash and naturally captures developments in withdrawal technology such as the increasing diffusion of bank branches and atm terminals we characterize the solution of the model which qualitatively reproduces several empirical patterns we estimate the structural parameters using micro data and show that quantitatively the model captures important economic patterns the estimates are used to quantify the expenditure and interest rate elasticity of money demand the impact of financial innovation on money demand the welfare cost of inflation and the benefit of atm ownership

consumers use of debit cards patterns preferences and price response debit card use at the point of sale has grown dramatically in recent years in the united states and now exceeds the number of credit card transactions however many questions remain regarding patterns of debit card use consumer preferences when using debit and how consumers might respond to explicit pricing of card transactions using a new nationally representative consumer survey this paper describes the current use of debit cards by u s consumers including how demographics affect use in addition consumers stated reasons for using debit cards are used to analyze how consumers substitute between debit and other payment instruments we also examine the relationship between household financial conditions and payment choice finally we use a key variable on bank imposed transaction fees to analyze price sensitivity of card use and find a 12 decline in overall use in reaction to a mean 1 8 fee charged on certain debit card transactions we believe this represents the first microeconomic evidence in the united states on price sensitivity for a card payment at the point of sale

how effective are rewards programs in promoting payment card usage empirical evidence card issuers have mainly relied on rewards programs as their main strategy to increase usage however there is scarce evidence on the effectiveness of these programs this paper is addressing two topics which could have important managerial and public policy implications i it estimates the impact of rewards on the use of cards and ii it quantifies their economic effects in terms of the cash substitution we find that rewards may significantly modify choice for card payments their economic impact also varies significantly across types of rewards and merchant activities additionally rewards seem to be more effective for debit cards

valuation by conflict abstract nonmarket valuation remains a central issue in ecological and environmental economics this paper examines the properties of an ex post revealed preference approach to value nonmarket goods valuation through observed effort expended in an environmental conflict we consider the strategic interaction between players in a conflict address the implied nash equilibrium and report a benchmark 4x rule as an ex post valuation estimate for a symmetric player conflict we then illustrate the degree of bias that exists once one allows for asymmetries in delegation ability and valuation the benchmark tends to overestimate value if a firm hires a powerful delegate who receives a large contingency fee

how does incompatibility affect prices evidence from atm s if consumers value mix and match combinations of network complements incompatibility between different sellers components should affect prices in atm markets a 1996 governance change exogenously generated such incompatibility by allowing banks to impose surcharges when other banks deposit customers use their atm s in our data incompatibility makes the relationship between deposit account pricing and own atm s more positive and makes the relationship between deposit account pricing and competitors atm s more negative the level effect on prices is positive the pattern of results is more pronounced in high population density markets where customers may care more about atm s

rent dissipation and efficiency in a contest with asymmetric valuations this paper introduces contest efficiency as an alternative to rent dissipation when measuring efficiency in a contest with asymmetric valuations contest efficiency is defined as the expected proportion of the maximum obtainable benefit captured by the contest and differs from rent dissipation because it values the expected winner of the contest therefore rent dissipation and contest efficiency may suggest contradictory conclusions when agents have asymmetric valuations this result is illustrated when comparing alternative equilibria in contests with asymmetric reimbursement and when analyzing the comparative static effect of a change in the relative benefit of two agents in a cournot nash contest

perfectly secure property rights and production inefficiencies in tullock contests from the point of view of institutional economics property rights are an instrument to shape individual incentives efficiently for the case of a tullock contest with endogenously determined rent i analyze the circumstances under which perfectly secure property rights emerge in an economy where the security of property is endogenously determined i analyze different sequential structures for the determination of defensive and appropriative investments and determine the equilibrium sequence of moves if the sequential structure is endogenous it turns out that in subgames where perfectly secure property rights emerge incentives for production are still inefficient in addition it can be shown that the endogenous determination of moves leads to a sequence of events that result in open conflict even if perfectly secure property rights would have been an alternative

investment and usage of new technologies evidence from a shared atm network when new technologies become available it is not only essential that firms have the correct investment incentives but often also that consumers make the proper usage decisions this paper studies investment and usage in a shared atm network be cause all banks coordinate their atm investment decisions there is no strategic but only a pure cost saving incentive to invest at the same time because retail fees for cash withdrawals are regulated to zero at both branches and atms consumers may not have the proper incentives to substitute their transactions from branches to the available atms we develop an empirical model of coordinated investment and cash withdrawal demand where banks choose the number of atms and consumers decide whether to withdraw cash at atms or branches we find that banks substantially underinvested in the shared atm network and thus provided too little geographic coverage this contrasts with earlier findings of strategic overinvestment in networks with partial incompatibility furthermore we find that consumer usage of the avail able atm network is too low because of the zero retail fees for cash withdrawals at branches a direct promotion of investment through subsidies or other means can improve welfare but the introduction of retail fees on cash withdrawals at branches would be more effective even if this does not encourage investment per se

risk attitudes and heterogeneity in simultaneous and sequential contests we prove existence and uniqueness of equilibrium in rent seeking contests in which players are heterogeneous in both risk preferences and production technology given identical linear production technology if the number of risk loving players is large enough the aggregate investment in equilibrium will exceed the rent and all risk neutral and risk averse players will exit the contest in simultaneous and sequential contests with two players we can identify the favorite and underdog based on both players preference parameters our theoretical results suggest that subjects in some recent contest experiments behaved as if they were risk loving

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

repeated contests a general parameterization abstract contests often involve players vying for the same prize year after year this paper characterizes equilibrium effort both individual and aggregate in a general parameterization of such repeated contests

a two stage model of research and development with endogenous second mover advantages this paper describes a simple two stage model of research and development in which the winner of the research stage has the option of moving first in the development stage some unexpected results emerge in equilibrium the leader in the development stage invests less than each follower and is consequently least likely to collect the patent moreover the leader receives a lower expected payoff than each of the followers thus there are endogenous second mover advantages using a game of timing in which the identity of the stackelberg leader is determined to link the two stages i find that firms face quite different incentives in the research stage although the leader invests less than each follower in the research stage as well the leader enjoys higher expected revenue from the complete two stage game than does each follower the equilibrium is inefficient because there is a lag between the time at which research is completed and the time at which development is begun and because aggregate investment is inefficiently asymmetrically distributed across firms

contests with multi tasking the standard contest model in which participants compete in a single dimension is well understood and documented multi dimension extensions are possible but are liable to increase the complexity of the contest structure mitigating one of its main advantages simplicity in this paper we propose an extension in which competition ensues in several dimensions and a competitor that wins a certain number of these is awarded a prize the amount of information needed to run the contest is hence limited to the number of dimensions won by each player we look at the design of this contest from the point of view of maximising effort in the contest per dimension and totally and show that there will be a tendency to run small contests with few dimensions the standard tullock model and its results are encompassed by our framework

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

atm foreign fees and cash withdrawals abstract we evaluate the impact of foreign fees paid by consumers on their cash withdrawals at automatic teller machines henceforth atms these so called foreign fees are paid when consumers withdraw cash from atms which are not owned by their home bank we take advantage of a natural experiment whereby non linear foreign atm fees in one specific bank became suddenly applicable at one point in time we also use this experiment to evaluate the substitutions between foreign atm withdrawals and other home atm or desk withdrawals as well as with payments by card using panel data on accounts we first estimate average treatment effects on the treated before carrying on with the estimation of a simple structural model the latter procedure allows us to compute the counterfactual impacts of changing the schedule of foreign fees impacts are sizeable on bank profits and consumer welfare

dynamic multi activity contests in many contests players can influence the outcome through efforts in multiple activities several of which can be chosen before others in this paper we develop a model of dynamic multi activity contests players simultaneously choose efforts in long run activities observe each other s efforts in these activities and then simultaneously choose efforts in short run activities a player s long run and short run efforts complement each other in determining the player s probability of winning we compare the outcomes of this two stage model to those of the corresponding model in which players do not observe each other s first stage efforts before the second stage and thus effectively choose efforts in all activities simultaneously interestingly effort expenditures are always lower in the sequential multi activity contest than in the simultaneous multi activity contest the implications of this result for the organization of military litigation innovation academic and sporting contests are highlighted

the distribution of income in the presence of appropriative activities we examine the distribution of income when agents allocate their initial endowments between production and appropriation arms investments influence or rent seeking activities final output depends on the productive contributions of the agents but is divided between them according to their relative contributions in appropriation various possible improvements in an agent s useful productivity reduce the agent s equilibrium share of income but increases in initial endowments increase an agent s share we contrast our results to those that would obtain in the competitive counterpart to our model and discuss its relevance both for history and for the present the results extend to a class of models where distribution is determined between two groups of agents with agents within each group behaving non cooperatively but without exhibiting the free rider problem

strategic behaviour in contests evidence from the 1992 barcelona olympic games analyses of strategic behaviour in contests conclude that the manner in which a contest participant exerts effort over time is systematically related to her status as a pre race underdog or favourite recently baik and shogren 1992 extented dixit s 1987 original work by incorporating endogenous order of moves by the race participants they conclude that it is always in the best interest of the underdog to move first while the favourite s optimal strategy is to wait moving second the particular economic context in which this work was framed e g research and development races makes it extremely difficult to subject the game theoretic conclusions to empirical scrutiny we solve this problem by applying the theoretical hypotheses to the track and field events held during the 1992 barcelona olympics using a fixed effects estimation procedure we find ample support for the conclusions of baik and shogren that favourites tend to start slowly in races and increase effort as the event transpires whi

to surcharge or not to surcharge an empirical investigation of atm pricing this paper investigates depository institutions decisions whether or not to impose surcharges direct usage fees on nondepositors who use their atms in addition to documenting patterns of surcharging we examine motives for surcharging including both direct generation of fee revenue and the potential to attract deposit customers who wish to avoid incurring surcharges at an institution s atms consistent with expectations we find that the probability of surcharging increases with both the institution s share of market atms and the time since surcharging was first allowed in the state and decreases with increasing local atm density further we find evidence consistent with the use of surcharges to attract deposit customers who are new to the local banking market but we find no evidence that larger banks use surcharges as a means to attract existing customers away from smaller local competitors

using cash to monitor liquidity implications for payments currency demand and withdrawal behavior this paper provides one explanation why cash is still used for transactions despite a broad diffusion of noncash payment instruments in particular we argue that a distinctive feature of cash a glance into one s pocket gives a signal of the remaining budget and past expenses provides utility to some consumers using payment survey data we show that consumers who need to keep control over their remaining liquidity and who have elevated costs of information processing conduct a larger percentage of payments using cash withdraw less often and hold larger cash balances than other consumers

mcis and monetary policy abstract several central banks have recently adopted a monetary conditions index mci to guide monetary policy under floating exchange rates this paper discusses some analytical and practical questions raised by mcis furthermore using data for australia canada and new zealand which all operate monetary policy under floating rates and with an inflation target it estimates the responses of the central banks to exchange rate changes the results reveal clear differences between central banks while the reserve bank of australia does not appear to respond the bank of canada and the reserve bank of new zealand who use the mci as an operating target do respond quite strongly to movements in the exchange rate

environmental conflicts and the slapp abstract a citizen has the right to challenge a firm s actions regarding development plans or violations of environmental laws firms have responded with the slapp strategic lawsuit against public participation fearing the loss of the constitutional right to petition several u s states have or are considering explicitly restricting the slapp for a class of environmental conflict models with one sided asymmetric information our results suggest that restricting the slapp does not increase the efficiency of the dispute

alternative approaches to evaluation in empirical microeconomics four alternative but related approaches to empirical evaluation of policy interventions are studied social experiments natural experiments matching methods and instrumental variables in each case the necessary assumptions and the data requirements are considered for estimation of a number of key parameters of interest these key parameters include the average treatment effect the treatment on the treated and the local average treatment effect some issues of implementation and interpretation are discussed drawing on the labour market programme evaluation literature

monetary policy trade offs and the correlation between nominal interest rates and real output the authors present a structural model of the u s economy that combines their price contracting specification with a term structure relationship an aggregate demand curve and a monetary policy reaction function the model matches important features of postwar data well and provides a structural explanation of the correlation between real output and the short term nominal rate of interest the authors perform a battery of monetary policy experiments that show that as viewed through the lens of this model monetary policy has struck a good balance recently among competing monetary policy objectives copyright 1995 by american economic association

demand for cash with intra period endogenous consumption abstract we extend the literature on the demand for money by relaxing the assumption of a constant rate of consumption although total consumption is still fixed over the period agents can choose more than one rate of consumption and cash depletion in the period to minimize the cost of money management consistent with empirical evidence we find that agents do not smooth intra period consumption instead their rate of consumption will be positively related to their cash position this positive correlation depends on the volatility of the consumption process

does manufacturer advertising crowd in or crowd out retailer advertising an application of an endogenous prize contest with asymmetric players when a manufacturer advertises what is the impact on retailer advertising i analyze a contest model of advertising where total advertising by the manufacturer and by retailers determines market size and the relative level of advertising by each retailer determines market share if retailers are symmetric i show that there is a crowding in effect so increased manufacturer advertising increases retail advertising but if one retailer is stronger then marginal increases in manufacturer advertising have a crowding out effect on retailer advertising while sufficiently large increases have a crowding in effect by jump starting competition between retailers for the larger market furthermore asymmetric abilities in such contests can lead the weaker player to effectively drop out of the contest thereby undermining the ability of increased prizes to increase effort by intensifying competition

strategic investment with asymmetric spillovers this paper investigates the implications of asymmetric spillovers on noncooperative strategic investments in a duopoly with quadratic pay offs a unique equilibrium in the announcement of the leader follower role exists in the case where one firm absorbs large spillovers while the other at most is able to receive only small spillovers the leader in this equilibrium is the firm that absorbs the large spillovers other asymmetries in initial costs or efficiency in research and development do not affect this outcome

orchestrating rent seeking contests contests have different sometimes quite complex organisational structures in particular while most of the existing literature focusses on simultaneous contests multistage contests are also quite frequently encountered this paper seeks to provide a rationale for the latter by endogenising the choice of a contest structure which is made by an organiser of a contest interested in maximising the efforts expended by the contenders

conflicts over property rights and natural resource exploitation at the frontier abstract competition for land at the frontier is analyzed by considering a game between a first settler and a contestant although the first settler is the legitimate owner of a plot of land his remoteness from the government s administrative center makes it difficult to prove it this creates incentives for a contestant to dispute his claims both contenders will expend resources in order to secure ownership due to transport costs the more remote a plot of land is the lower its output value this tends to discourage appropriative activities land degradation is sometimes used as a substitute to appropriative activities a lower discount rate may encourage land degradation

asymmetry and corrective public policy in contests the proposal of an inefficient policyusually stimulates a political strugglebetween the affected interest groups theresulting wasteful lobbying activities mayreduce welfare even if the proposed policyis not approved in this paper weshow that sufficient asymmetry in payoffsnot only tends to reduce lobbying effortsin standard rent seeking contests as iswell known but it is in fact a necessarycondition for the implementation of asuccessful effective correctivetax transfer policy that complements theproposal of the inefficient policy such apolicy induces an efficient equilibriumoutcome which is in addition optimal fromthe viewpoint of the players that take partin the public policy game

strategic decisions on lawyers compensation in civil disputes i introduction a plaintiff and a defendant usually bargain to settle a civil dispute when they cannot reach a settlement the case goes to trial naturally through the settlement and trial stages the litigants behave strategically a few researchers study such a situation by developing contest models 1 examples include plott 1987 katz 1988 farmer and pecorino 1999 wfirneryd 2000 and hirshleifer and osborne 2001 there exists however some discrepancy between the contest models and the mainstream articles in the law and economics literature the contest models deal with the legal battle itself to use the words of hirshleifer and osborne 2001 by contrast the mainstream articles focus on one or some of the important aspects of the negotiation and litigation process such as the likelihood of settlement the reasons for lawsuits the efficient levels of precautions the burden of proof the comparison of alternative fee shifting systems and the compensation for lawyers in the presence of an agency problem 2 this article attempts to reconcile the two strands a bit further to do so we develop a contest model in which the negotiation and litigation stages are combined as in the previous contest models but unlike the previous ones two lawyers one for a plaintiff and the other for a defendant are introduced using this contest model with delegation we are able to analyze some of the important issues in legal disputes for instance a plaintiffs lawyer in the united states routinely charges one third of the award if his client wins and nothing if his client loses a natural question which we can address using our model is then why the lawyer s contingent fee is not one half of the award nor two thirds but one third using our model we can also address the following issues does the plaintiff have an incentive to choose an hourly fee arrangement if feasible does delegation to the lawyers increase the total legal expenditure of the plaintiff and defendant compared with the case of no delegation why do a plaintiff and a defendant hire lawyers in litigation a straightforward reason for such delegation is that a litigant can benefit by hiring a lawyer who has more capacity than herself throughout the article we use she to refer to a litigant and he to refer to a lawyer another explanation is that a litigant can benefit by achieving strategic commitments through delegation specifically the litigant can change her opponent s behavior in her favor by using a lawyer whose objective function differs from hers baik and kim 1997 consider a contest model that carries both aspects of delegation for the first time in the delegation literature but the idea that strategic delegation benefits a main player has long been emphasized in many contexts examples include schelling 1960 fershtman and judd 1987 katz 1991 and warneryd 2000 this article extends the delegation model of baik and kim 1997 to the case where a plaintiffs lawyer works on a contingent fee basis but a defendant s lawyer on an hourly fee basis 3 we assume that the litigants and lawyers are risk neutral to be more precise our two stage game runs as follows in the first stage knowing that the defendant adopts the hourly fee the plaintiff determines the contingent fee fraction for her lawyer and announces it publicly in the second stage the lawyers exert their effort simultaneously and independently to win the lawsuit the plaintiff s lawyer chooses the effort level on his own but the effort level of the defendant s lawyer is chosen by the defendant the defendant has to incur a monitoring cost because she hires her lawyer under the hourly fee we use logit form probability of winning functions after solving for the subgame perfect equilibrium of the game we first derive the condition on relevant parameters under which delegation to the lawyers brings both litigants more payoffs compared with the case of no delegation

to fight or not to fight an analysis of submission struggle and the design of contests this paper considers the players behaviour in an asymmetric two player contest when do they decide to struggle and when to subjugate analysing contest success functions it is found that two crucial prerequisites for struggle or war have to be met thus such an equilibrium is possible but restrictive if a self interested rule setter chooses the contest success function endogenously we show that one player will always subjugate applications to rent seeking and environmental regulation are discussed

economies of scope and scale in green advocacy environmental advocacy is a large and growing activity whilst a number of economists have analysed the advocacy process no systematic attempt has been made to understand the factors influencing the organisation of the sector we explore the relationship between economies of scale and scope in advocacy under the most popular specification of a tullock type contest economies of scope arise when and only when the scale of that activity is sufficiently large the incentives for merger are socially efficient implying no need for policy intervention

contests with stochastic abilities we consider the properties of perfectly discriminating contests in which players abilities are stochastic but become common knowledge before efforts are expended players whose expected ability is lower than that of their rivals may still earn a positive expected payoff from participating in the contest which may explain why they participate we also show that an increase in the dispersion of a player s own ability generally benefits this player it may benefit or harm his rival but cannot benefit the rival more than it benefits himself we also explore the role of stochastic ability for sequential contests with the same opponent multibattle contests and with varying opponents elimination tournaments and show that it reduces the strong discouragement effects and holdup problems that may otherwise emerge in such games high own ability dispersion selects such players into the contest and favors them in elimination contests jel d72 d74 i introduction manytournamentsarecharacterizedbymultiple rounds with or without the elimination of some candidates in earlier stages of the process of determining a final winner in the political context electionprocessesthatdetermineparty leadersorpoliticalleadersmoregenerallyconsist ofmultipleconteststages intheracefortheu s presidency severalcompetitionstagesgradually narrowdownthenumberofcompetitors 1 inter

contests a comparison of timing and information structures we study a model of imperfectly discriminating contests with two ex ante symmetric agents we consider four institutional settings contestants move either sequentially or simultaneously and in addition their types are either public or private information we find that an effort maximizing designer of the contest prefers the sequential to the simultaneous setting from an ex ante perspective moreover the sequential contest pareto dominates the simultaneous one when the contestants types are sufficiently negatively correlated regarding the information structure the designer ex ante prefers private information while the contestants prefer public information

endogenous timing in the presence of non monotonicities the aim of this paper is to generalize the endogenous timing game proposed by hamilton and slutsky games and economic behavior 1990 2 pp 29 46 by allowing the payoff or the marginal payoff of a player to become non monotonic with respect to the strategy of the opponent we propose a taxonomy of the subgame perfect nash equilibria based on the characteristics of the payoff functions proposed by eaton canadian journal of economics 2004 37 pp 805 29 we determine under which conditions of the initial payoff functions commitment has a social value and when the simultaneous move nash equilibrium is commitment robust and discuss its pareto efficiency

contest efforts in light of behavioural considerations this study shows that distortion of probabilities is a possible reason for rent under dissipation incontests with relatively small number of participants such distortion may also result however inover dissipation of the contested rent focusing on contests with homogeneous contestants and thecommonly studied contest success function our main results clarify under what circumstances i rents are more under dissipated relative to the standard situation where probabilities are notdistorted ii rents are under dissipated yet less intensely relative to the standard situation whereprobabilities are not distorted iii rents are over dissipated and iv the contest does not possess asymmetric interior equilibrium in pure strategies

some implications of corporate taxation for rent seeking activity in this paper we show that corporate taxes are likely to have considerable implications for rent seeking activity we find that corporate taxation tends to significantly reduce rent seeking and that it favors rent seeking by established firms and discriminates against new and zero profit firms indeed we show that corporate tax regulations may completely block rent seeking by new corporations and that rent seeking competitions may be characterized by an equilibrium that features a small number of profitable and well established firms tax regulations may therefore impart an oligopolistic tendency to rent seeking markets moreover our results may have significant implications for the effects of corporate taxes on patent races tournaments and other first past the post competitions

do rent seeking groups announce their sharing rules i introduction rent seeking can be seen all around us firms or coalitions of firms expend resources to influence government officials who have authority to award monopoly rights self interested pressure groups lobby for government subsidies foreign producers exert effort to avoid imposing tariffs or quotas on their products interest groups or lobbyists contribute to the election of politicians who promise to advance favorable legislation research and development rd then the groups announce their decisions simultaneously before choosing their sharing rules we examine the groups decisions on releasing sharing rule information their sharing rules and the effort levels and payoffs of the individual players in equilibrium we formally consider the following three stage game in the first stage each group decides and announces whether it will release to the rival group the information about its sharing rule which will be determined in the second stage in the second stage the players in each group jointly choose their sharing rule and then each group releases the information about its sharing rule if it decided to do so in the first stage in the third stage all the players in both groups choose their effort levels simultaneously and independently at the end of this third stage the winning player is chosen and the winner shares the prize with the other players in his group according to the sharing rule on which they agreed in the second stage solving the game we find the following first the case where both groups release their sharing rule information never occurs in equilibrium second the case where neither group releases its sharing rule information occurs only if the players are evenly matched third when the players are unevenly matched one group releases its sharing rule information and the other does not

effort levels in a cournot nash contest with asymmetric information abstract many contests exist where one player does not know his opponent s value of a fixed prize e g unobservable non market preferences for preservation this paper explores how changes in the nature of a one sided information asymmetry affect effort levels in a cournot nash contest the results indicate that the uninformed player s effort is an uncertain input such that his effort is inversely related to risk this reduces his average odds of success comparative static results are driven by the perceived odds of success and risk for the uninformed player and the actual odds of success for the informed player

rent seeking with asymmetric valuations this paper analyzes tullock s rent seeking game with asymmetric valuations for a variable range of the returns to scale parameter a necessary and sufficient condition for a unique pure strategy nash equilibrium is established equilibrium effort and expected profits are determined and subjected to comparative statics analysis increasing the underdog s valuation induces both players to increase their efforts increasing the favorite s valuation increases his effort but decreases the effort of the underdog expected profits increase with a player s valuation but decreases with the valuation of the competitor the impact of the returns to scale parameter is also analyzed

inefficiency as a strategic device in group contests against dominant opponents i introduction many strategic situations in economics and politics can be understood as contests rd nitzan and ueda 2009 a private good nitzan 1991a 1991b nitzan and ueda 2009 or a mixed good esteban and ray 2001 nitzan and ueda 2011 to a large extent the intensity of free riding or conversely the motivation for individuals to exert effort in a contest is shaped by the intra group incentive scheme or governance structure in standard contests incentives are inseparably linked to the sharing rule i e to the usually exogenous procedure by which the rents acquired in the contest are distributed within the group 1 in a number of economic applications however incentives to exert effort appear to be separate or are even willfully separated from the sharing rule phenomena such as team spirit akerlof and kranton 2005 identification with the group sherif 1966 bornstein and ben yossef 1994 peer pressure kandel and lazear 1992 or social norms to contribute to the social good elster 1989 are examples for this separation alternatively groups could apply selective incentive schemes based on relative performance lazear and rosen 1981 or marginally align individual and group incentives nitzan and ueda 2009 in all these scenarios individuals behave cooperatively i e in the interest of the entire group even if the final distribution of rents follows a standard sharing rule mechanisms to induce cooperation often are costly sanchez pages and straub 2010 may only work under restrictive conditions che and gale 2003 require strategic coordination among individuals hardin 1995 or cannot be ensured to be obeyed unanimously oliver 1980 this might explain why they do not emerge universally or automatically the point we make in this article is even stronger even if there existed perfect and costless solutions to within group free riding problems which will henceforth be called intra group efficient incentive schemes igeis they might not always be adopted why would a group for which an igeis is freely available not wish to utilize it but rather adopt an apparently inefficient governance structure by definition an igeis internalizes all within group externalities and seems to be a safe way to increase one s payoffs however this reasoning ignores repercussions that arise in strategic environments like contests suppose for example that the competing groups have sufficiently unequal strengths say due to unequal sizes or different comparative advantages then the weaker group may refrain from implementing a costless igeis to avoid the contest from heating up adoption of an igeis makes a group more efficient and consequently more aggressive in the contest on one hand higher efforts constitute a cost on the other they affect the share of the rent that this group can hope to acquire or the likelihood of succeeding in the contest 2 an igeis clearly enhances a group s prospects if the other group did not change its behavior however if members of the opponent group reply with a sufficiently strong increase in their contest efforts this diminishes and may potentially more than offset the gains from one s own increased efforts whether this happens depends on the direction of the strategic interaction between groups the detrimental firing back effect can only become relevant if the other group s efforts are sufficiently strong strategic complements to one s own efforts

the is curve and the transmission of monetary policy is there a puzzle in this paper the performance of the new keynesian is curve for the g7 countries is assessed it is found that there is an is puzzle for both the purely backward looking as well as for the forward looking is curve the real interest rate does not have a significantly negative effect on the output gap based on an extended specification of the is curve also including asset prices and monetary aggregates a significantly negative interest rate effect on aggregate demand is found for all countries this finding suggests that a richer specification of the is curve in empirical work may be necessary in order to obtain an unbiased estimate of the effect of monetary policy on aggregate demand

to deter or to moderate alliance formation in contests with incomplete information we consider two players choice about the formation of an alliance ahead of conflict in a framework with incomplete information about the strength of the potential ally when deciding on alliance formation players anticipate the self selection of other players and the informational value of own and other players choices in the absence of these signaling effects strong players have an incentive to stand alone which leads to a separating equilibrium this separating equilibrium can be destabilized by deception incentives if beliefs are updated on the basis of endogenous alliance formation choices weak players may find it attractive to appear strong in order to deter competitors from positive effort choices strong players may find it attractive to appear weak in order to give their competitors a false sense of security and then beat them with little effort moreover appearing weak allows players to free ride when alliances are formed jel d72 d74

endogenous timing in general rent seeking and conflict models we examine simultaneous versus sequential choice of effort in a two player contest the timing of moves determined in a preplay stage prior to the contest subgame as well as the value of the prize is allowed to be endogenous contrary to endogenous timing models with an exogenously fixed prize the present paper finds the following 1 players may decide to choose their effort simultaneously in the subgame perfect equilibrium spe of the extended game 2 the spe does not need to be unique in particular there is no unique spe with sequential moves if the direct costs of effort are zero 3 symmetry among players does not rule out incentives for precommitment to effort locally away from the cournot nash level 4 finally there may be no correlation between win probability and strategic incentives in our framework a finding most central in the analysis of fixed prize contests

strategic behavior in contests comment in an influential paper avinash dixit 1987 considers a class of symmetric two player contests in which each player s effort xi influences the probability of winning a prize valued at k 0 letting p x1 x2 denote the probability 1 that player 1 wins the expected payoffs of the two players are p1 5 p x1 x2 k 2 x1 and p2 5 1 2 p x1 x2 k 2 x2 dixit s main result is that if there is perfect symmetry between the players and each player s effort has a positive but diminishing marginal effect on his or her probability of winning i e