conform or challenge adjustment strategies of sanction torn companies the literature on sanctions often neglects the role of domestic firms in sender states although sanctions only have a real economic effect when senders firms reduce their activities on the target s market in contrast sanctions avoidance and increasing investments in the target country the observed behaviour of many companies facing the eu sanctions against russia imposed in 2014 mitigate the impact of these restrictive measures while sanctions increase the political risk for companies they also offer economic opportunities and previous studies could not settle the debate on which factor prevails by evaluating responses from british french german italian and polish enterprises to an online survey distributed in 2017 we analyse at the firm level how sanction torn companies adjust to new political orders and what drives their strategic decisions we find evidence that resource dependency induces strategies that challenge sanction policies in particular non fungible assets in the target country incentivise companies to further increase their engagement these defiance strategies diminish the real economic effect of sanctions and generate a new economic equilibrium which has negative long term implications on the choice set of policymakers to further pursue the imposition of sanctions and which even outlasts the lifting of these restrictive measures

endogenous entry and self selection in private value auctions an experimental study this paper presents the results of an experimental study of endogenous entry in first price independent private value auctions n potential bidders simultaneously decide whether to participate in an auction or receive a known outside option in the second stage entrants submit bids after learning their own private values and the number of entrants an equilibrium model of heterogeneous risk averse bidders implies a self selection effect where bidding in the auction is lower with endogenous entry because only less risk averse bidders enter this effect is confirmed by the experiment we also observe excessive entry relative to the theoretical model

bidder preferences among auction institutions i introduction auctions have become a pervasive method of exchange in the online world as each day thousands of auctions take place online and this trade volume totals to billions of dollars worth of goods per year 1 this large volume of auction transactions implies the existence of a large number of sellers competing for buyers the obvious implication is that the competition among the sellers for the pool of potential buyers can be fierce and any competitive edge a seller can find could be important one such competitive edge a seller might exploit is using an auction design that attracts bidders away from their competitors when designing a real auction or modeling a theoretical one the entry decision of prospective bidders is rarely considered most auction analysis is performed assuming that a certain number of bidders will participate for certain or perhaps that the number of bidders is unknown and randomly determined it should be clear however that the most crucial part of a successful auction is encouraging as many bidders as possible to participate in general this should be expected to have a positive effect on revenue at least in noncommon value environments and in certain types of auctions it may help combat the possibility of bidder collusion because there are typically competing auctions available for similar goods or even outside options that bidders can pursue when auctions are for unique goods it is important to understand how the aspects of an auction format can effect the entry decision of a bidder consider a bidder who is faced with the choice of entering one of two auctions for similar or even identical objects how does this bidder make the decision of which auction to enter the obvious answer is that the bidder will enter into the auction that maximizes his or her expected utility so long as that expected utility is greater than some reservation value the real question then is how are these expected utilities constructed profit from participating in the auction is an obvious argument there are also a number of environmental considerations that might effect this decision that would be difficult to account for precisely such as the reputation and trustworthiness of the auctioneer quality of the advertisement for the auction and things of this nature it is also possible that the format of the auction itself can have an impact on the preferences of the bidder this latter point will be the issue of this study the particular focus will be looking at bidder preferences between the two most common standard auction formats used in the field the sealed bid first price will be abbreviated as just the sealed bid auction and the ascending or english auction the other reason we are interested in comparing these two auction formats rather than the ascending and second price or first price and descending is that it seems reasonable to expect bidders to have preferences between the two due to the strategic differences between them such differences lead to substantial differences in terms of the difficulty of deciding how to bid and also in the possibility that an outcome leads to a bidder experiencing some form of regret regret may occur in a first price auction when a bidder loses to a bid that is below his value as he may think that if only he had bid higher he could have won although such feelings of regret may be considered irrational that does not preclude their existence such a scenario should not reasonably occur in an ascending auction if one considers the situation of a bidder choosing between two auctions that differ only in regard to whether the auction is being conducted according to an ascending or sealed bid format it is not immediately obvious which would be the most preferred even assuming a standard symmetric independent private values environment were all bidders risk neutral then of course revenue equivalence would hold and the bidders would be indifferent

regret and feedback information in first price sealed bid auctions we investigate the effect of regret related feedback information on bidding behavior in sealed bid first price auctions two types of regret are possible in this auction format a winner of the auction may regret paying too much relative to the second highest bid and a loser may regret missing an opportunity to win at a favorable price in theory under very general conditions being sensitive to winning and paying too much should result in lower average bids and being sensitive to missing opportunities to win at a favorable price should result in higher bids for example the u s government s policy of revealing losing bids may cause regret sensitive bidders to anticipate regret and bid conservatively decreasing the government s revenue we test these predictions in the laboratory and find strong support for both

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

formulating research policy on expert advice abstract national research assessments represent the principal policy used by countries with public university systems to improve the quality of their universities research they typically employ expert panels of local academics to assess journal quality and use such assessments to reward publications we propose a model of how experts assess quality and test this model using data from the recent australian assessment controlling for objective quality we show that experts cognitive biases dominate their assessments consequently such assessments exaggerate the quality of the experts research and understate that of their colleagues our model can explain 95 of the variation in assessments

spectrum auction designs and revenue variations this study examines a sample of 93 national 3g spectrum auctions for the period 2000 2011 to identify the sources of substantial revenue variations an implied reduced form econometric model that recognises the censored nature of the sample relates per capita winning bid per mhz per million populations values to regulator determined auction design characteristics auction competitiveness mobile wireless market conditions and spectrum package attributes identified from tender documents the analysis reveals that among other factors all auction design characteristics independently impact on realized 3g spectrum auction revenues

conflict cooperation and commerce the effect of international political interactions on bilateral trade flows the public choice approach to political economy is employed to gain insight into the connection between international politics and trade flows a model is constructed in which importers are assumed to be rational utility maximizers who seek to satisfy international security as well as economic welfare objectives this model of bilateral trade flows reflects contemporary theory in the field of international economics and it explicitly incorporates the general foreign policy orientation of importers among its determinants the model is tested in 16 annual crosssectional estimations 1960 75 for a complete network of 25 countries the findings show considerable support for the hypothesis that trade flows are significantly influenced by broad political relations of amity and enmity between nations the author concludes that nations adjust trade ties to satisfy security as well as economic welfare goals and that a formal political economy of trade should reflect this fact

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

an introduction to vote counting schemes t he design of an electoral system is fundamental to any democracy motivation for understanding how electoral system design matters comes from many directions the creation of new constitutions in eastern europe the recent trauma of a three way presidential election in the united states the ongoing debate over u s redistricting and gerrymandering the furor caused by lani guinier s call for a more representative voting system the status quo adds another incentive plurality rule is pervasive even though it is a flawed system fortunately there is no lack of suitable alternatives one of the purposes of this symposium and this paper in particular is to help illustrate and motivate the remarkable variety of alternative mechanisms that aggregate individual preferences to decide an election this overview offers a summary of sixteen distinct methods and demonstrates by example how some of the more complex systems work the shorter papers that follow focus on some of the more popular alternatives including approval voting single transferable vote the maximum likelihood rule and more one can speculate on why alternatives to plurality rule have had such a difficult time being adopted part of the cause may be arrow s general possibility theorem arrow 1951 demonstrates that any voting system applied to an unrestricted collection of voter preferences must have some serious defect we must always choose between flawed alternatives with conflicting theoretical guidance to help select the least flawed option people evaluate a system by its likely effect on the status quo outcome since those in power tend to want to

using first price auctions to sell heterogeneous licenses abstract this paper considers three alternative ways to sell heterogeneous licenses via a first price format when there is single unit demand it has been suggested that incorporating a first price element may bolster competition in this case klemperer paul d 2002 what really matters in auction design journal of economic perspectives 16 169 189 in a controlled laboratory setting we compare the performance of the simultaneous first price auction the sequential first price auction and the simultaneous descending auction with that of the simultaneous ascending auction the experiments involve several bidding environments of varying complexity we find that the simultaneous ascending auction achieves the highest levels of efficiency but also has drawbacks i its revenues are low and variable ii per license profits vary and iii the incidence of winner s curse outcomes is high seller s revenues are highest when the licenses are sold in a sequential first price auction in decreasing order of quality

a study of collusion in first price auctions this paper examines the bidding for school milk contracts in florida and texas during the 1980s in both states firms were convicted of bid rigging the data and legal evidence suggest that the cartels in the two states allocate contracts in different ways one cartel divides the market among members while the other cartel also uses side payments to compensate members for refraining from bidding we show that both forms of cartel agreements are almost optimal provided the number of contracts is sufficiently large in the auction the cartel bidder may face competition from non cartel bidders the presence of an optimal cartel induces an asymmetry in the auction the selected cartel bidder is bidding as a representative of a group and has on average a lower cost than a non cartel bidder the data support the predicted equilibrium bidding behaviour in asymmetric auctions in accordance with optimal cartels

ranking auctions with risk averse bidders this paper ranks first and second price independent value auctions with risk averse bidders when entry is endogenous unless bidders exhibit decreasing absolute risk aversion dara the fixed n ranking of first price over second price is sustained however when bidders exhibit dara we show that the effect of entry sometimes reverses the ranking we discuss how elements of the auction environment such as the relative magnitude of entry costs the number of potential bidders and the degree of risk aversion affect the ranking journal of economic literatureclassification numbers d44 d82 c72

u s policy toward foreign direct investment foreign investment policy is an increasingly important part of overall foreign policy the authors investigate the substance of u s outgoing foreign direct investment ofdi and incoming foreign direct investment ifdi policy in terms of a small set of policy values and process factors the policy values are domestic prosperity national autonomy and national security the process factors are ideological consonance impact transparency the diffusion and concentration of perceived costs and benefits and the political capacity of groups and institutions these considerations illuminate the relative stability in both areas of policy since world war ii and help to explain the changes that did take place the paper concludes with a forecast that despite the oft heard prediction that economic nationalism is on the increase u s policies toward foreign investment will remain much the same during the eighties as they have been since world war ii

the principal agent relationship with an informed principal the case of private values we analyze the principal agent relationship when the principal has private information as a three stage noncooperative game contract proposal acceptance refusal and contract execution we assume that the information does not directly affect the agent s payoff private values equilibrium exists and is generically locally unique moreover it is pareto optimal for the different types of principal the principal generically does strictly better than when the agent knows her information equilibrium allocations are the walrasian equilibria of an economy where the traders are different types of principal and exchange the slack on the agent s individual rationality and incentive compatibility constraints

optimal auctions revisited in symmetric privately known values oral auctions with costly entry for bidders the seller can do no better than by committing ex ante to a reservation price and entry fees or subsidies which result in no fewer and at most one more bidders than a reservation price equal to the seller s value would in the absence of entry fees or subsidies journal of economic literature classification numbers d44 c72

pareto efficiency and weighted majority rules we consider the design of decision rules in an environment with two alternatives independent private values and no monetary transfers the utilitarian rule subject to incentive compatibility constraints is a weighted majority rule where agents weights correspond to expected gains given that their favorite alternative is chosen it is shown that a rule is interim incentive efficient if and only if it is a weighted majority rule and we characterize those weighted majority rules that are ex ante incentive efficient we also discuss efficiency in the class of anonymous mechanisms and the stability of weighted majority rules

self selection and market power in risk sharing contracts abstract although the theory of optimal contracts and the principal agent model are now well established in the literature empirical support for this theory has been mixed at best we use economic experiments to test contract theory and assess the empirical relevance of two possible confounding factors that may explain why the theory has not received stronger empirical support first parameters of interest may be biased if agents self select into projects with differing risk profiles based on risk preferences second differing levels of market power on either side of the market could shift contract terms in ways contrary to theoretical predictions in general we find support for classical contract theory augmented to accommodate market power and self selection based on risk preferences we also find evidence for a third confound in the form of the characteristics of agents not party to the transaction affecting the terms of the contract

history s role in coordinating decentralized allocation decisions what causes individual suppliers to allocate goods in such a way that the aggregate allocation satisfies the law of one price a satisfactory answer to this question must confront two related problems equal net prices at all allocations provide no information to suppliers about the quantity to deliver to a specific location and strategic uncertainty makes an observed violation of the law of one price an unreliable indicator of a profit opportunity this paper develops a simple analytical framework to formalize these two problems reviews some solutions found in the literature and reports laboratory evidence on how people solve them in addressing these issues we focus on the role historical prices play in coordinating decentralized allocation decisions

reciprocity and resistance to comprehensive reform comprehensive reforms often fail despite being beneficial to society politicians may block comprehensive reforms in an attempt to form vote trading coalitions in which they benefit from a piecemeal reform at the expense of others because formal commitment devices for vote trading are frequently missing trust and reciprocity among legislators can play an important role for vote trading we investigate in a laboratory experiment whether legislators will impede comprehensive reforms in an attempt to form vote trading coalitions even if formal commitment devices for vote trading after reform failure are missing we find that open ballots allow for vote trading without commitment based on trust and reciprocity in turn legislators frequently reject efficient comprehensive reforms in such institutions

group decision making in the shadow of disagreement abstract a model of group decision making is studied in which one of two alternatives must be chosen while agents differ in their preferences over alternatives everybody prefers agreement to disagreement our model is distinguished by three features private information regarding valuations differing intensities in preferences and the option to declare neutrality to avoid disagreement there is always an equilibrium in which the majority is more aggressive in pushing its alternative thus enforcing their will via both numbers and voice however under general conditions an aggressive minority equilibrium inevitably makes an appearance provided that the group is large enough such equilibria invariably display a tyranny of the minority the increased aggression of the minority always outweighs their smaller number leading to the minority outcome being implemented with larger probability than the majority alternative we fully characterize the asymptotic behavior of this model as group size becomes large and show that all equilibria must converge to one of three possible limit outcomes

independent private value auctions bidder behaviour in first second and third price auctions with varying numbers of bidders the symmetric equilibrium of third price auctions is characterized it makes a number of contrasting predictions relative to firms and second price auctions bids exceed private values the marginal effects on bids of an increase in private values is greater than one increasing numbers of bidders reduces bids and risk aversion requires bidding below the risk neutral nash equilibrium in the experiment bidders do not always satisfy the point predictions of the theory however the game theoretic models correctly anticipate at least directionally the important effects of the price rule changes copyright 1993 by royal economic society

a dictionary for voting paradoxes abstract a sonnenschein mantel debreu kind of characterization is found for positional voting procedures namely for n 2 candidates once the voting procedures and a profile are specified the rankings of all possible subsets of candidates are uniquely determined by varying over all profiles one obtains a dictionary of all possible coordinated election outcomes this is done for all positional voting procedures as with excess demand functions anything can happen voting paradoxes can be very complicated only borda s method avoids many paradoxes use of this dictionary is illustrated by significantly extending several well known paradoxes and by obtaining new results about runoff and agenda elections strategic behavior etc

price discrimination by a many product firm determining the optimal selling strategy for a multiproduct firm facing consumers with unknown tastes is a difficult task this paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products becomes large

on the justice of decision rules which decision rules are the most efficient which are the best in terms of maximin or maximax we study these questions for the case of a group of individuals faced with a collective choice from a set of alternatives a key message from our results is that the set of optimal decision rules is well defined particularly simple and well known the class of scoring rules we provide the optimal scoring rules for the three different ideals of justice under consideration utilitarianism efficiency maximin and maximax the optimal utilitarian scoring rule depends crucially on the probability distribution of the utilities the optimal maximin respectively maximax scoring rule takes the optimal utilitarian scoring rule and applies a factor that shifts it towards negative voting respectively plurality voting

robustness of bidder preferences among auction institutions i introduction the answer to the question of how bidders choose to enter one auction versus an alternative competing auction is important to understand in providing a complete picture of the nature of endogenous entry decisions into auctions the issue of how a bidder chooses which among alternative auctions to enter as well as whether to enter an auction at all is of substantial importance to auctioneers attempting to attract bidders to their auctions there is a growing literature addressing issues in endogenous entry in auctions there are several papers such as engelbrecht wiggans 1993 pevnitskaya 2004 and palfrey and pevnitskaya 2008 that consider the decision of whether to enter an auction or not and study the effect of endogenous entry on bidding behavior there is a much larger group for example harstad 1990 engelbrecht wiggans 1993 levin and smith 1994 mcafee 1993 and mcafee and mcmillan 1987 that considers competition between auctioneers in which the auctioneers are competing along some characteristic such as entry price we consider the case in which auctioneers may be competing with each other based on the choice of auction mechanism our interest is in the degree to which the auction mechanism itself might impact the entry decisions of potential bidders of course there would be a direct pecuniary impact of the mechanism in that bidders should be more likely to enter auction mechanisms that they believe allow them to get lower prices but there may be other cognitive issues in regard to the structure of the mechanism that may also impact the choice behavior in ivanova stenzel and salmon iss 2004a we introduced an experimental design aimed at eliciting and measuring preferences subjects might possess for different auction institutions and applied the design to testing bidder preferences between ascending a dynamic mechanism and sealed bid first price a static mechanism auctions it seems reasonable to expect bidders to have preferences between these two auction mechanisms due to the strategic differences between them in a first price auction the winner pays a price equal to his own bid whereas in the ascending auction he pays a price that is an increment above the second highest bid these differences might result in difficulty of deciding how to bid and in the possibility of experiencing some form of regret 1 the design involved having subjects make a choice between entering into a two bidder sealed bid first price auction versus a two bidder ascending auction each with different entry prices by varying the entry prices we could measure the subjects willingness to pay for either auction our main finding in the paper was that while subjects exhibited strong preferences for the ascending auction at equal entry prices they were not willing to pay up to the expected profit difference between the two auctions to participate in an ascending auction thus they ended up entering the supposedly less preferred sealed bid first price auction even in situations in which they would expect to make a higher net surplus including the cost of the entry fee by entering into the ascending auction instead that paper proposed one possible answer to the puzzle that involved assuming that bidders were risk averse in their bidding behavior and then risk averse to the same degree in their auction choice behavior this explanation worked because neither risk averse nor approximately risk neutral bidders should be expected to pay much to enter into an ascending auction instead of a sealed bid first price auction just as we observed in the experiment for the most risk averse bidders this is because while they bid the highest in the first price auction and therefore expected little surplus in the event that they win they consequently end up winning with higher probability than less risk averse bidders this is a trade off risk a verse bidders are willing to accept and consequently it is easy to show that highly risk averse bidders should not be willing to pay much to get into the more lucrative though risky ascending auction

the high low divide self selection by values in auction choice abstract most prior theoretical and experimental work involving auction choice has assumed bidders find out their value after making a choice of which auction to enter we examine whether or not bidders knowing their value prior to making a choice of which among multiple alternative auction formats to enter impacts their choice decision and or the outcome of the auctions the results show a strong impact on auction choice subjects with low values choose the first price sealed bid auction more often while subjects with high values choose the ascending auction more often the number of bidders in each auction revenue efficiency and average bidder surplus all end up equalized

explaining all three alternative voting outcomes abstract a theory is developed to explain all possible three alternative single profile pairwise and positional voting outcomes this includes all preference aggregation paradoxes cycles conflict between the borda and condorcet winners differences among positional outcomes e g the plurality and antiplurality methods and differences among procedures using these outcomes e g runoffs kemeny s rule and copeland s method it is shown how to identify interpret and construct all profiles supporting each paradox among new conclusions it is shown why a standard for the field the condorcet winner is seriously flawed journal of economic literature classification numbers d72 d71

collusion with almost no information we analyze noncooperative collusion in an infinitely repeated bertrand game where each of the n firms receives a privately observed i i d cost shock in each period and firms only and privately observe whether they have won the unit mass of consumers no other information is available and no communication is allowed we prove that there exist equilibria in private strategies approximating first best profits when firms are sufficiently patient in particular productive efficiency obtains in the limit

tacit collusion in repeated auctions abstract this paper considers the question of tacit collusion in repeated auctions with independent private values and with limited public monitoring mcafee and mcmillan show that the extent of collusion is tied to the availability of transfers monetary transfers allow cartels to extract full surplus a folk theorem proved by fudenberg et al econometrica 62 1994 997 1039 shows that transfers of future payoffs are almost as good if players are patient and communicate before auctions we ask how the scope of collusion is affected if players dispense with explicit communication and their monitoring is limited collusion better than bid rotation is still feasible but full surplus cannot be extracted this constraint becomes less severe with more players and large cartels can become asymptotically efficient even with very limited monitoring

optimal multiperiod contracts and the gain from enduring relationships under private information informational asymmetries can play a key role in explaining the existence and nature of multiperiod contracts in an illustrative risk sharing model even relatively short two period contracts can be mutually beneficial if there is private information though one period contracts suffice otherwise further contracts which are pareto optimal relative to the environment and the information structure are defined and partially characterized an example illustrates how otherwise inefficient intertemporal tie ins can be used optimally to mitigate incentive problems the obvious borrowing lending schemes are not private information pareto optimal in these period by period actions are not sufficiently constrained discounting affects the form of the optimal contract but none of these qualitative conclusions

5 information impact and allocation rules in auctions with affiliated private values a laboratory study in affiliated private value auctions each bidder has perfect information regarding his her own value for the object at auction but higher values of the item for one bidder make higher values for other bidders more likely we report on a series of experiments examining three key implications of these auctions i in a first price auction public information about rivals values increases expected revenue ii an english auction increases expected revenue compared to a first price auction and iii a second price auction is isomorphic to an english auction in examining these issues we compare predictions of some ad hoc bidding models with nash equilibrium predictions in the first price auction experiments nash equilibrium bidding theory organizes the data better than either of two ad hoc bidding models public information about others valuations does increase average revenue but the increase in revenue is smaller and less reliable than predicted under risk neutral nash equilibrium bidding lower average revenue might be attributed to risk aversion while the high variability is attributed to a sizable frequency of individual bidding errors relative to the theory bidding theory precisely organizes english auction outcomes after a brief initial learning period the dominant strategy equilibrium does not organize second price auctions nearly as well as market prices persistently exceed predicted prices the difference between english and second price outcomes is attributed to effects of different information flows inherent in the structure of the two institutions on eliminating bidding errors revenue impacts of these two institutions relative to a first price auction are examined in light of observed bidding patterns

role of linking mechanisms in multitask agency with hidden information we investigate the adverse selection problem where a principal delegates multiple tasks to an agent we characterize the virtually implementable social choice functions by using the linking mechanism proposed by jackson and sonnenschein 2007 that restricts the message spaces the principal does not require any incentive wage schemes and can therefore avoid any information rent and welfare loss we show the resemblance between the functioning of this message space restriction and that of incentive wage schemes we also extend the results of the single agent model to the multi agent model

when costly voting is beneficial abstract we present a costly voting model in which each voter has a private valuation for their preferred outcome of a vote when there is a zero cost to voting all voters vote and hence all values are counted equally regardless of how high they may be by having a cost to voting only those with high enough values would choose to incur this cost we show that by adding this cost welfare may be enhanced even when the cost of voting is wasteful such an effect occurs when there is both a large enough density of voters with low values and the expected value of voters is high enough

self enforcing voting in international organizations some international organizations are governed by unanimity rule some others by a majority system still others have moved from one system to the other over time the existing voting models have a difficult time explaining the observed variation in governance mode and in particular the widespread occurrence of the unanimity system we present a model whose main departure from standard voting models is that there is no external enforcement mechanism each country is sovereign and cannot be forced to follow the collective decision or in other words the voting system must be self enforcing the model yields unanimity as the optimal system for a wide range of parameters and delivers rich predictions on the variation in the mode of governance both across organizations and over time we thank james anderson matt jackson francois maniquet guido tabellini and jean tirole for very helpful comments arnaud costinot provided excellent research assistance we also bene

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

a dominant strategy double auction a double auction mechanism that provides dominant strategies for both buyers and sellers is analyzed this mechanism satisfies the 1n convergence to efficiency of the buyer s bid double auction in addition the mechanism always produces full information first best prices the inefficiency arises because the least valuable profitable trade may be prohibited by the mechanism the mechanism has an oral implementation utilizing bid and asked prices

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

reversal of fortunes democratic institutions and foreign direct investment inflows to developing countries does increased democracy promote or jeopardize foreign direct investment fdi inflows to less developed countries we argue that democratic institutions have conflicting effects on fdi inflows on the one hand democratic institutions hinder fdi inflows by limiting the oligopolistic or monopolistic behaviors of multinational enterprises facilitating indigenous businesses pursuit of protection from foreign capital and constraining host governments ability to offer generous financial and fiscal incentives to foreign investors on the other hand democratic institutions promote fdi inflows because they tend to ensure more credible property rights protection reducing risks and transaction costs for foreign investors hence the net effect of democracy on fdi inflows is contingent on the relative strength of these two competing forces our argument reconciles conflicting theoretical expectations in the existing literature empirical analyses of fifty three developing countries from 1982 to 1995 substantiate our claims we find that both property rights protection and democracy related property rights protection encourage fdi inflows after controlling for their positive effect through property rights protection democratic institutions reduce fdi inflows these results are robust against alternative model specifications statistical estimators and variable measurements

how many hands to make sanctions work comparing eu and us sanctioning efforts abstract one of the core disputes in the literature on economic statecraft addresses the conditions under which multilateral sanctions are more successful than unilateral ones our game theoretic model implies that extant assessments do not sufficiently differentiate between the varying abilities of multilateral and unilateral senders in credibly threatening and carrying out sanctions we introduce a selection argument that focuses on the complex decision making process of the european union eu to impose sanctions in comparison to the united states us the institutional structure of the eu and conflicting economic interests of multiple principals make the imposition of sanctions much more difficult in addition the international organization is less accountable vis a vis the voters both mechanisms render sanction threats by the eu less credible since the united states as a unilateral sender can issue more credible sanction threats imposed us sanctions are a negative selection of cases and thus less successful than restrictive measures imposed by the eu we test these propositions with a new dataset on threatened and imposed sanctions by the european union and the united states for the period between 1989 and 2015 the empirical evidence demonstrates that eu sanctions are indeed more successful than those by the us in contrast us sanction threats are more successful than those by the eu we provide evidence for the difficulties of multilateral senders to impose sanctions by showing that eu sanctions are both less likely and less severe the more varied the economic links of the multilateral sender with the sanctioned state are

on the weights of nations assigning voting weights in a heterogeneous union we study indirect democracy in which countries states or districts each elect a representative who later votes at a union level on their behalf we show that the voting rule that maximizes the total expected utility of all agents in the union involves assigning a weight to each district s vote and then sticking with the status quo unless at least a threshold of weighted votes is cast for change we analyze how the weights relate to the population size of a country and the correlation structure of agents preferences and then we compare the voting weights in the council of the european union under the nice treaty and the recently proposed constitution

on the optimal provision of social insurance progressive taxation versus education subsidies in general equilibrium in this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk but distort the education decision of households optimally chosen tertiary education subsidies mitigate these distortions we highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits we also argue that a full characterization of the transition path is crucial for policy evaluation we find that optimal education policies are always characterized by generous tuition subsidies but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium

overcoming incentive constraints by linking decisions consider a bayesian collective decision problem in which the preferences of agents are private information we provide a general demonstration that the utility costs associated with incentive constraints become negligible when the decision problem is linked with a large number of independent copies of itself this is established by defining a mechanism in which agents must budget their representations of preferences so that the frequency of preferences across problems mirrors the underlying distribution of preferences and then arguing that agents incentives are to satisfy their budget by being as truthful as possible we also show that all equilibria of the linking mechanisms converge to the target utility levels the mechanisms do not require transferable utility or interpersonal comparisons of utility and are immune to manipulations by coalitions

efficient voting with penalties abstract simple majority does not reflect the intensity of voters preferences this paper presents an efficient collective choice mechanism with two alternatives when the designer may use non transferable punishments to persuade agents to reveal their private information the designer faces a dilemma a punishment may induce a more correct choice but its cost is socially wasteful the efficient mechanism is a weighted majority weight of each individual is known ex ante and no punishments are applied if preferences are relatively homogeneous eliciting types through punishments in order to construct type specific weights should occur if preference intensity is relatively heterogeneous

when are sanctions effective a bargaining and enforcement framework although a considerable literature identifies the conditions under which sanctions are more likely to be successful few studies examine the question of when sanctioning states or senders are willing to enforce their sanctions laws against their firms using a game theoretic model we argue that imposing sanctions creates a strategic dilemma for senders we demonstrate that senders often have disincentives to enforce their sanctions policies given that the restriction on economic transactions with targeted states may undermine their firms competitiveness the model indicates that sanctions are more likely to succeed when the sender s firm retains a moderate share of the target s market relative to its foreign competitors however the model also demonstrates that sanctions are likely to be imposed only when the conditions do not favor their success the empirical implications of the model are tested using the threat and imposition of economic sanctions ties data set

revenue equivalence revisited the conventional wisdom in the auction design literature is that first price sealed bid auctions tend to make more money while ascending auctions tend to be more efficient we re examine these issues in an environment in which bidders are allowed to endogenously choose in which auction format to participate our findings are that more bidders choose to enter the ascending auction than the first price sealed bid auction and this extra entry is enough to make up the revenue difference between the formats consequently we find that both formats raise approximately the same amount of revenue they also generate efficiency levels and bidder earnings that are roughly equivalent across mechanisms though the earnings in the ascending might be slightly higher

continuous decisions by a committee median versus average mechanisms abstract a group of strategic agents with diverse private information and interdependent preferences has to take a continuous collective decision i study the design of the decision making procedure from the viewpoint of a utilitarian social planner for uniformly distributed information the implementation of the average report as decision dominates the implementation of the median report when the set of admissible reports is optimally designed this is true for any number of agents and for any degree of interdependence the result extends to a general class of distributions when the number of agents is large

efficient repeated implementation this paper examines repeated implementation of a social choice function scf with innitely lived agents whose preferences are determined randomly in each period an scf is repeated implementable in nash equilibrium if there exists a sequence of possibly history dependent mechanisms such that i its nash equilibrium set is non empty and ii every nash equilibrium outcome corresponds to the desired social choice at every possible history of past play and realizations of uncertainty we show with minor qualications that in the complete information environment an scf is repeated implementable in nash equilibrium if and only if it is ecient we also discuss several extensions of our analysis including constructions employing only nite mechanisms

a measure of rationality and welfare evidence showing that individual behavior often deviates from the classical principle of preference maximization has raised at least two important questions 1 how serious are the deviations 2 what is the best way to analyze choice behavior in order to extract information for the purpose of welfare analysis this paper addresses these questions by proposing a new way to identify the preference relation that is closest in terms of welfare loss to the revealed choice

cheap talk comparisons in multi issue bargaining abstract bargaining over two issues as a bundle permits credible cheap talk about their relative importance even when interests are directly opposed on each issue the resulting communication gains can exceed the gains from bundling previously identified in the monopoly pricing literature

coordination in auctions with entry abstract we examine self enforcing bidder coordination in auctions in which bidding is costly conditions on the distribution of valuations are identified that guarantee multiple equilibria under slightly stronger conditions within the set of sunspot payoffs only those that are convex combinations of payoffs of extreme asymmetric equilibria are interim efficient for the bidders if preplay communication is possible every no communication equilibrium payoff is interim pareto dominated for the bidders by some cheap talk equilibrium payoff when the number of auctions is large communication equilibria exist that yield ex post efficient payoffs for the bidders almost surely journal of economic literatureclassification numbers d44 d82

state owned mncs and host country expropriation risk the role of home state soft power and economic gunboat diplomacy expropriation risk has a binding effect on foreign direct investment fdi however state owned multinational corporations may counter the monopoly power of the host state by leveraging the political influence of their home government the magnitude of this counter force we argue may vary depending on the strength of political relations between the home and host state and the level of economic dependence of the host country on the home market we find supporting evidence of our hypotheses using chinese firm level fdi information between 2003 and 2010

the comparative advantages of firms markets and contracts a unified theory the most efficient labour market mechanism depends on the advantages of specialization workers costs of switching between entrepreneurs and the frequency with which needs change multilateral mechanisms are more efficient when specialization is more advantageous when it is cheap for workers to switch between entrepreneurs and when individual entrepreneurs cannot occupy a worker on a full time basis given a bilateral mechanism employment a firm is more efficient than contracts when in process adjustments arise more frequently there exist three regions in which firms markets and sequences of bilateral contracts are weakly more efficient than all other mechanisms in a big class

optimal voting rules we study dominant strategy incentive compatible dic and deterministic mechanisms in a social choice setting with several alternatives the agents are privately informed about their preferences and have single crossing utility functions monetary transfers are not feasible we use an equivalence between deterministic dic mechanisms and generalized median voter schemes to construct the constrained efficient optimal mechanism for an utilitarian planner optimal schemes for other welfare criteria such as say a rawlsian maximin can be analogously obtained

a foundation for strategic agenda voting abstract we offer complete characterizations of the equilibrium outcomes of two prominent agenda voting institutions that are widely used in the democratic world the amendment also known as the anglo american procedure and the successive or equivalently the euro latin procedure our axiomatic approach provides a proper understanding of these voting institutions and allows comparisons between them and with other voting procedures

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

rationalizing choice with multi self models this paper studies a class of multi self decision making models proposed in economics psychology and marketing in this class choices arise from the set dependent aggregation of a collection of utility functions where the aggregation procedure satises some simple properties we propose a method for characterizing the extent of irrationality in a choice behavior and use this measure to provide a lower bound on the set of choice behaviors that can be rationalized with n utility functions under an additional assumption scale invariance we show that generically at most ve reasons are needed for every mistake

public goods participation constraints and democracy a possibility theorem abstract it is well known that ex post efficient mechanisms for the provision of indivisible public goods are not interim individually rational however the corresponding literature assumes that agents who veto a mechanism can enforce a situation in which the public good is never provided this paper instead considers majority voting with uniform cost sharing as the relevant status quo efficient mechanisms may then exist which also satisfy all agents interim participation constraints in this case ex post inefficient voting mechanisms can be replaced by efficient ones without reducing any individual s expected utility intuitively agents with a low willingness to pay have to contribute more under majority rule than under an efficient mechanism with a balanced budget although this possibility theorem is not universal in the sense of schweizer 2006 an asymptotic possibility is obtained for certain type distributions

the effect of sanctions on u s foreign direct investment for years the united states has imposed economic sanctions to com pel countries to alter their behavior an important concern is whether government sanctions influence private foreign direct investment fdi decisions the largest source of foreign capital in the first study to assess empirically the relationship between economic sanctions and fdi we consider whether u s sanctions influence u s fdi inflows into targeted countries using panel data for 171 countries from 1965 to 2000 we find strong evidence that u s investors pull out of countries targeted for u s sanctions prior to their imposition this disinvestment is not permanent and invest ment tends to return after the sanctions are imposed the results provide support for fdi studies that show the effect of risk on investor decision making the use of economic sanctions by the united states to compel countries to alter their behavior has increased in recent years at the same time u s foreign direct investment fdi has expanded with u s multinational corporations mncs rep resenting the largest share of global fdi despite the growth of u s fdi and the u s government s imposition of sanctions no empirical work has considered the relationship between sanctions and u s investor decisions how do u s mncs react to the use of u s sanctions and does u s fdi make sanctions more or less effective in this article we analyze the impact of u s sanctions on investment decisions made by u s mncs building on investors risk calculations that are critical to the fdi literature 1 we propose several reasons why risk linked to economic sanctions influences fdi flows we hypothesize that u s firms significantly draw down their investment in tar geted countries prior to the imposition of sanctions as risk levels are most height ened however after sanctions have been in place long enough for investors to understand their specific restrictions uncertainty surrounding the amount of risk decreases and u s fdi is expected to return to levels near the pre sanction period

multiproduct monopoly commodity bundling and correlation of values through what selling strategy can a multiproduct monopolist maximize his profits when his knowledge about individual consumers preferences is limited one possibility extensively studied in the context of a single good monopoly is to use quantity dependent pricing as a means of discriminating among customers with differing tastes see for example oi 1971 and maskin and riley 1984 an alternative technique for price discrimination first suggested by stigler 1968 and analyzed further by adams and yellen 1976 is for the monopolist to package two or more products in bundles rather than selling them separately through a series of examples adams and yellen illustrate that bundling can serve as a useful price discrimination device even when all consumers willingnesses to pay for each of the goods individually are unaffected by whether they are also consuming the other product a typical example is illustrated in figure i adapted from figure iv in adams and yellen where there are two goods three consumers ab c who consume at most one unit of each good with reservation values for each good that are independent of whether the other good is consumed and zero costs of production there a bundle offered at a price of 100 fully extracts all potential surplus which would be impossible pricing the goods independently unfortunately though these authors do not provide any general characterization of the circumstances in which bundling is actually a multiproduct monopolist s optimal strategy their examples however such as figure i create the impression that the profitable use of bundling

amicable divorce dissolving a partnership with simple mechanisms abstract this paper considers mechanisms for allocating the assets of a dissolving partnership that can be specified without information on the distribution of valuations of the asset or the level of risk aversion of the participants for the case of a single asset and risk averse agents three simple mechanisms are considered these mechanisms can be ranked in terms of ex post efficiency and partially ranked in terms of interim expected utility the efficiency of the alternating selection mechanism is considered for environments when there are many items to be allocated agents are risk neutral and transfers are prohibited conditions are given when a myopic strategy of picking the most preferred abailable item forms an equilibrium and these conditions are satisfied under independence under the further assumption of identical distributions of valuations it is shown that the total expected efficiency loss is at most 1 2 of the maximal value of a single item regardless of how many items are to be allocated

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

welfare of naive and sophisticated players in school choice two main school choice mechanisms have attracted the attention in the liter ature boston and deferred acceptance da the question arises on the ex ante welfare implications when the game is played by participants that vary in terms of their strategic sophistication abdulkadiroglu che and yasuda 2011 have shown that the chances of naive participants getting into a good school are higher under the boston mechanism than under da and some naive participants are actually better o in this note we show that these results can be extended to show that under the veil of ignorance i e students not yet knowing their utility values all naive students may prefer to adopt the boston mechanism

ordinal versus cardinal voting rules a mechanism design approach abstract we consider the performance and incentive compatibility of voting rules in a bayesian environment agents have independent private values there are at least three alternatives and monetary transfers are prohibited first we show that in a neutral environment meaning alternatives are symmetric ex ante essentially any ex post pareto efficient ordinal rule is incentive compatible importantly however we can improve upon ordinal rules we show that we can design an incentive compatible cardinal rule which achieves higher utilitarian social welfare than any ordinal rule finally we provide numerical findings about incentive compatible cardinal rules that maximize utilitarian social welfare

mechanisms for efficient voting with private information about preferences we experimentally study behavior in a simple voting game where players have private information about their preferences with random matching subjects overwhelmingly follow the dominant strategy to exaggerate their preferences which leads to ineciency we analyze an exogenous linking mechanism suggested by jackson and sonnenschein 2007 as well as repeated interaction in dierent settings which could allow endogenous linking mechanisms to evolve we find that applying the exogenous mechanism captures nearly all achievable eciency gains whereas repeated interaction leads to significant gains in truthful representation and eciency only in

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

how important are financial frictions in the united states and the euro area this paper aims to evaluate whether frictions in credit markets are important for business cycles in the united states and the euro area i modify the dsge financial accelerator model developed by bernanke gertler and gilchrist 1999 by adding such frictions as price indexation to past inflation sticky wages consumption habits and variable capital utilization when estimating the model using bayesian methods i find that financial frictions are relevant in both areas according to the posterior odds ratio the data clearly favor the model with financial frictions both in the united states and the euro area moreover financial frictions are larger in the euro area

the winner s curse reserve prices and endogenous entry empirical insights from ebay auctions internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce we examine a unique data set of ebay coin auctions to explore the determinants of bidder and seller behavior we begin by documenting a number of empirical regularities in our data set of ebay auctions next we specify and estimate a structural econometric model of bidding on ebay using our parameter estimates from this model we measure the extent of the winner s curse and simulate seller revenue under different reserve prices

efficiency and observability with long run and short run players we present a general algorithm for computing the limit as 1 of the set of payoffs of perfect public equilibria of repeated games with long run and short run players allowing for the possibility that the players actions are not observable by their opponents we illustrate the algorithm with two economic examples in a simple partnership we show how to compute the equilibrium payoffs when the folk theorem fails in an investment game we show that two competing capitalists subject to moral hazard may both become worse off if their firms are merged and they split the profits from the merger finally we show that with short run players each long run player s highest equilibrium payoff is generally greater when their realized actions are observed journal of economic literature classification numbers c72 c73 d21 d82 d92 e22