but who will monitor the monitor suppose that providing incentives for a group of individuals in a strategic context requires a monitor to detect their deviations what about the monitor s deviations to address this question i propose a contract that makes the monitor responsible for monitoring and thereby provides incentives even when the monitor s observations are not only private but costly too i also characterize exactly when such a contract can provide monitors with the right incentives to perform in doing so i emphasize virtual enforcement and suggest its implications for the theory of repeated games jel c78 d23 d82 d86

ex ante incentive efficient trading mechanisms without the private valuation restriction abstract the private valuation assumption found in most trading mechanism design papers rules out markets whose valuation structure generates externalities between traders this paper characterizes the set of ex ante incentive efficient trading mechanisms for a large class of markets that do admit such externalities and for bilateral trade markets establishes the impossibility of a first best solution across a class of trading problems employing uniform priors and linear valuation structures this paper also compares levels of market efficiency for varying numbers of traders

what separates us sources of resistance to globalization with increasing sophistication economists have been estimating gravity equations for five decades robust evidence shows that borders and distance impede trade by much more than tariffs or transports costs can explain we therefore advocate investigation of other sources of resistance despite the greater difficult involved in measuring and modelling them from our selective review of recent findings a unifying explanation emerges a legacy of historical isolation and conflict forged a world economy in which neither tastes nor information are homogeneously distributed cultural difference and inadequate information manifest themselves most strongly at national borders and over distance

individually rational budget balanced mechanisms and allocation of surplus abstract we investigate the issue of implementation via individually rational ex post budget balanced bayesian mechanisms we show that all decision rules generating a nonnegative expected social surplus are implementable via such mechanisms if and only if the probability distribution of the agents type profiles satisfies two conditions the well known condition of cremer and mclean 1988 full extraction of the surplus in bayesian and dominant strategy auctions econometrica 56 1247 1257 and the identifiability condition introduced in this paper we also show that these conditions are necessary for ex post efficiency to be attainable with budget balance and individual rationality and that the expected social surplus in these mechanisms can be distributed in any desirable way lastly we demonstrate that like cremer mclean condition the identifiability condition is generic if there are at least three agents

non use values and the management of transboundary renewable resources abstract it has long been recognized in economics that individuals can derive benefits from a resource stock without directly or indirectly utilizing that resource such non use values including existence values and bequest values are often ignored in models of resource management in this paper a simple two country model of the management of a renewable resource is developed in which at least one country has a non economic interest in the conservation of the fish stock to examine the impact of such a non use value on the end of period harvest and self enforcing sharing rule the model shows that this non lucrative pursuit serves to decrease the total allowable catch for each period at the expense of the catch share of the more conservation oriented country a result that is consistent with the september 1995 decision by nafo ending the dispute between canada and the eu over turbot

on the optimal management of transboundary renewable resources a comment on munro s paper in a number of bargaining situations parties involved will not be able to form strictly or juridically binding contracts hence in analysing problems of finding equilibrium contracts one has to rely on time or subgame consistency in the paper a simplified version of a model by munro is used to derive a self enforcing sharing agreement of exploiting a transboundary renewable resource the properties of such an agreement differ from those proposed by munro a propos de la gestion optimale de ressources renouvelables trans nationales un commentaire sur le memoire de gordon r munro dans nombre de situations de negociation les parties en presence ne peuvent en arriver a des contrats qui engagent strictement ou juridiquement en analysant les problemes pour en arriver a des contrats d equilibre il faut s en remettre a un engagement coherent pour un moment ou un sous jeu dans ce memoire l auteur utilise une version simplifiee d un modele de munro pour deriver un accord de partage que les parties vont honorer dans l exploitation d une ressource renouvelable trans nationale les proprietes d un tel accord sont differentes de celles auxquelles en arrive munro

robustly coalition proof incentive mechanisms for public good provision are voting mechanisms and vice versa we study the relation between mechanism design and voting in public good provision if incentive mechanisms must satisfy conditions of robust coalition proofness as well as robust incentive compatibility the participants contributions to public good provision can only depend on the level of the public good that is provided and that level can only depend on the population shares of people favouring one level over another for a public good that comes as a single indivisible unit the outcome depends on whether or not the share of votes in favour of provision exceeds a specified threshold with more provision levels for the public good more complicated mechanisms can be used but they still involve the counting of votes rather than any measurement of the participants willingness to pay the article thus provides a foundation for the use of voting mechanisms

efficient bilateral trade with statistically dependent beliefs abstract this paper derives a necessary and sufficient condition for ex post efficient trade to be feasible when trader beliefs can be statistically dependent allowing for dependent beliefs produces equilibrium and comparative statics behavior that differs qualitatively from that observed in bilateral trade models in which traders have independent beliefs

balanced bayesian mechanisms in the transferable utility case a number of authors have identified conditions on beliefs that guarantee the existence of bayesian incentive compatible mechanisms with balanced transfers we present a new easy to interpret condition and we show that it is strictly more general than all the other conditions found in the literature we also study conditions guaranteeing the bayesian implementability of all social decision rules with balanced budget mechanisms

foundations of dominant strategy mechanisms wilson 1987 criticizes applied game theory s reliance on common knowledge as sumptions in reaction to wilson s critique the recent literature of mechanism design has adopted the goal of finding detail free mechanisms in order to eliminate this re liance in practice this has meant restricting attention to simple mechanisms such as dominant strategy mechanisms however there has been little theoretical foundation for this approach in particular it is not clear the search for an optimal mechanism that does not rely on common knowledge assumption would lead to simpler mechanisms rather than more complicated ones this paper tries to fill the void in the context of an expected revenue maximizing auctioneer we investigate some foundations for using simple dominant strategy auctions

optimal contracts with public ex post information abstract we are concerned with the value of public ex post information about a seller s costs to an initially uninformed buyer we derive necessary and sufficient conditions for a public ex post signal s s that is correlated with the risk neutral seller s costs to render the initial information asymmetry inconsequential to the buyer the first best outcome for the buyer is shown to be feasible if 1 the dimension of s is at least that of or 2 the conditional likelihood function of s given is for one of its realizations sj a strictly increasing function of and more concave in than is the seller s cost function

taking gravity online the role of virtual proximity in international finance abstract this paper analyses international patterns of bilateral portfolio equity and debt investment in a gravity model framework we contribute to the literature by exploring the role of virtual proximity measured by bilateral internet hyperlinks between countries as a novel proxy for cross border information flows and cultural proximity more generally our findings show that bilateral portfolio investment is significantly affected by virtual proximity indicating that countries which are more closely connected in terms of web content are more integrated financially the effect is stronger for equity than for debt investment highlighting the larger information sensitivity of equity investments and is largest for investments among advanced economies moreover including virtual proximity in estimations reduces the importance of traditionally used proxies for information asymmetries and cultural proximity

search costs and equilibrium price dispersion in auctions a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool 1 we thank aaron bodoh creed greg lewis steve tadelis and various seminar participants for helpful comments nate woody for programming assistance and the cornell university institute for social sciences for financial support the views expressed herein are solely those of the authors and do not necessarily reflect those of the u s department of justice 1

dynamic yardstick mechanisms abstract this paper shows that the inability of principals to commit to long term contracts is irrelevant when dealing with several agents whose private information is correlated this sharply contrasts with the dynamics of contracting without such correlation the paper also explores what limitations on yardstick mechanisms can justify the use of long term contracts we found that the inability of a principal to commit not to renegotiate long term contracts is without consequence even if there is a bound on transfers that an agent can be asked to pay in contrast short term contracting fails to implement the commitment solution with constraints on transfers second absent current yardstick the possibility of using correlated mechanisms in the future allows the principal to implement the first best with a renegotiation proof long term contract whereas this cannot be achieved with short term contracting

efficiency and mechanisms with no regret can we always design a game form so that all its bayesian equilibrium outcomes are either interim individually rational efficient or interim envy free efficient in asymmetric information economies we show that the answer is no given that such games exist in complete information economies can this gap be filled by games that leak information endogenously without enlarging the equilibrium set we adopt two approaches first we introduce a theory of cheap play as a natural model of such games the second is an extreme approach that adopts an ex post viewpoint neither yields a possibility result information leakage does not recover efficiency this paper addresses the following question in any domain of asymmetric information economies is it always possible to design a game form so that all its equilibrium outcomes are either interim individually rational efficient or interim fair envy free efficient our first result is that with bayesian equilibrium as the solution concept we can never design such a game form in a wide domain of economies the impossibility result persists even if there were strong restrictions on the information structure guaranteeing incentive compatibility of all allocation rules from the nash implementation literature maskin 1977 hurwicz et al 1984 we know that such games exist in complete information economies our first result indicates the cost in terms of social welfare imposed on society by the presence of information asymmetry this raises a natural question can the gap between the positive results under complete information and the negative ones under incomplete information be bridged by devising game forms that leak information endogenously in an equilibrium of such a game the players optimality calculations are conditioned on the newly acquired information superficially it appears that such games may yield a solution to the problem of nonexistence of efficient mechanisms information leakage is a mixed blessing since typically it would require pre play communication which tends to enlarge the set of equilibria our negative findings using bayesian equilibrium were primarily due to the presence of too many equilibria in every conceivable game form clearly we need a game form that

mechanism design with interdependent valuations efficiency ggagents valuations are interdependent if they depend on the signals or types of all agents under the implicit assumption that agents cannot observe their outcome decision payoffs previous literature has shown that with interdependent valuations and independent signals efficient design is impossible this paper shows that an efficient mechanism exists in an environment where first the final outcome e g allocation of the goods is determined then the agents observe their own outcome decision payoffs and then final transfers are made

approximation in mechanism design with interdependent values abstract this paper studies the revenue maximization problem in environments wherein buyers have interdependent values and correlated types we show that 1 when the system of feasible sets is a matroid and buyer valuations satisfy a single crossing condition the generalized vickrey clarke groves mechanisms with lazy reserves vcg l are ex post incentive compatible and ex post individually rational 2 if in addition the valuation distribution satisfies a generalized monotone hazard rate condition the vcg l mechanism with conditional monopoly reserves is approximately optimal then we construct an ascending auction that implements the truth telling equilibrium of a vcg l mechanism in ex post equilibrium finally we discuss the connection between the vcg l mechanisms and greedy algorithms studied in lehmann et al 2002 and deferred acceptance auctions studied in milgrom and segal 2014 and the impact of competition by proving a bulow and klemperer 1996 type result

the ex ante incentive compatible core in the absence of wealth effects in a differential information economy with quasi linear utilities monetary transfers facilitate the fulfillment of incentive compatibility constraints the associated ex ante core is generically non empty however we exhibit a wellbehaved exchange economy in which this core is empty even if goods are allocated through random mechanisms

from bottom of the barrel to cream of the crop sequential screening with positive selection in a number of interesting environments dynamic screening involves positive selection in contrast with coasian dynamics only the most motivated remain over time the paper provides conditions under which the principal s commitment optimum is time consistent and uses this result to derive testable predictions under permanent or transient shocks it also identifies environments in which time consistency does not hold despite positive selection and yet simple equilibrium characterizations can be obtained

efficiency despite mutually payoff relevant private information the finite case individuals have or observe partly private information they independently choose acts possibly including messages the center may also act individuals utilities may depend on all acts and information including others private information are there incentives depending only on public information that make desired behavior a bayesian equilibrium assume incentive payments are separable and fully transferable appropriate incentives exisit either if the center s information depends stochastically however slightly on all relevant private information or if individuals relative valuations of acts however divergent are not too dissimilarly affected by different states of nature more generally one gives necessary and sufficient conditions for existence whenever the strategy profile asks agents to reveal all private knowledge relevant to their beliefs about the center s information

optimal search auctions with correlated bidder types abstract we study optimal auctions when contacting prospective bidders is costly and the bidders values are correlated although full surplus extraction is in general impossible we can construct a search mechanism that fully extracts the surplus with an arbitrarily high probability

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

an efficient dynamic auction for heterogeneous commodities this paper proposes a new dynamic design for auctioning multiple heterogeneous commodities generalizing earlier work that treated identical objects an auctioneer wishes to allocate one or more units of each of k heterogeneous commodities to n bidders the auctioneer announces a vector of current prices bidders report back quantities demanded at these prices and the auctioneer adjusts the prices units are credited to bidders at the current prices as their opponents demands decline and the process continues until every commodity market clears bidders rather than being required to behave as price takers are permitted to strategically exercise their market power nevertheless with pure private values the proposed auction yields walrasian equilibrium prices an efficient outcome results as from a vickrey clarke groves mechanism but bidders are only required to evaluate their demands along a one dimensional path of prices rather than reporting their utilities over the entire k dimensional consumption set the auction is also more transparent and potentially simpler for bidders to understand and has the advantage of assuring the privacy of the upper portions of bidders demands theoretically the new auction provides a new foundation for convergence to walrasian equilibrium in an exchange economy practically it provides an efficient method for simultaneously auctioning two or more related types of securities for example three month and six month treasury bills it is also potentially useful for auctioning multiple types of communications spectrum for example licenses for paired and unpaired spectrum

full implementation and belief restrictions we introduce a framework to study the problem of full implementation under general restrictions on agents beliefs which we call implementation first we provide a characterization of the properties of the mechanisms that achieve implementation these conditions relate the possibility of achieving full implementation to the strength of the strategic externalities induced by the mechanism we then study how to achieve full implementation via the design of simple transfer schemes in these context the general conditions for implementation suggest a simple design principle in which belief restrictions are used to weaken the strategic externalities induced by the baseline transfers of the belief free benchmark importantly our results require minimal information on agents beliefs which regard simple moments of the distribution of types these moment conditions arise naturally in applications and in practical problems of mechanism design

the effect of the internet on economic sophistication an empirical analysis abstract backed by empirical results obtained from dynamic panel data analysis this letter contends that the internet has a positive effect on the sophistication of exported products after controlling for potential covariates

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

the scope of anonymous voluntary bargaining under asymmetric information we present a model of anonymous collective bargaining where individuals preferences and information may be significantly interdependent we show that the bargaining outcome becomes independent of individuals preferences and information as the bargaining group increases in size as a corollary we show that anonymous voluntary bargaining completely fails in large groups either the difference between the bargaining outcome and the status quo vanishes as the size of the group becomes larger or the bargaining becomes coercive and results in a violation of at least some individuals rights the result provides a rationale for the inherent difficulty of reform in the presence of asymmetric information

cooperation in a stochastic transboundary fishery the effects of implementation uncertainty versus recruitment uncertainty this paper examines how non binding cooperative agreements on fisheries management can be sustained when the management plans in participating countries are implemented imperfectly and compares the effects of implementation uncertainty and of recruitment uncertainty on the potential for cooperation the model developed assumes two countries that share a fish stock reproduction depends on how much fish each country leaves behind after harvesting and hence on random variation in each country s achieved abandonment level a self enforcing agreement is proposed that accounts for the random variation the agreement is illustrated with a numerical example a self enforcing cooperative solution can only be sustained when uncertainty is not pronounced and when the two countries control close to equal shares of the fishery even when a cooperative agreement can be achieved frequent phases of reversion to non cooperative harvest levels are needed to support the agreement a comparison of the effects of recruitment and implementation uncertainty on implicit cooperation indicates that implementation uncertainty is more likely to hamper cooperation

competition and the reform of incentive schemes in the regulated sector abstract we consider a regulation problem with complete contracting in a principal agent model with adverse selection and review within this model the various channels by which external competition parameters affect incentives within the regulated firm the channels are the principal s information the principal s objective function the agent s incentive constraint the agent s participation constraint we consider in particular a better information structure a threat of liquidation a fight for talent a more efficient private sector and the existence of better substitutes we characterize in each case the conditions under which the effect on incentives is positive

in a world without borders the impact of taxes on internet commerce the rapid rise in sales over the internet and the fact that most internet buyers pay no sales tax has ignited a considerable debate over taxes and the internet this paper uses new data on the purchase decisions of approximately 25 000 online users to examine the effect of local sales taxes on internet commerce the results suggest that controlling for observable characteristics people living in high sales taxes locations are significantly more likely to buy online the results are quite robust and cannot be explained by unobserved technological sophistication shopping costs or other alternative explanations the magnitudes in the paper suggest that applying existing sales taxes to internet commerce might reduce the number of online buyers by up to 24 percent

designing a private industry government auctions with endogenous market structure abstract this paper considers government mechanisms for auctioning production rights in which both the winners and the market structure doupoly dual sourcing monopoly sole sourcing or government owned production are a function of the bids in designing the optimal mechanism the government considers the tradeoffs among consumer surplus producer surplus and revenue under incomplete information doupoly is implemented less frequently and government production more frequently than under complete information when bidders are symmetric the optimal mechanism can be implemented as a modified second price auction applications to privatization deregulation and defense procurement are discussed

information management in incentive problems we extend the standard procurement model to examine how an agent is optimally induced to acquire valuable planning information before he choose an unobservable level of cost reducing effort concer

correlated types and bayesian incentive compatible mechanisms with budget balance abstract this note presents a condition which guarantees the existence of a bayesian incentive compatible mechanism with budget balance when agents have quasi linear utility functions this condition requires correlation among agents private signals types and is 1 simple and easy to verify 2 good for any decision rule whether efficient or not 3 valid even if agents types are mutually payoff relevant and 4 true for almost every probability distribution of agents types journal of economic literatureclassification numbers c72 d82

tight revenue bounds with possibilistic beliefs and level k rationality mechanism design enables a social planner to obtain a desired outcome by leveraging the players rationality and their beliefs it is thus a fundamental but yet unproven intuition that the higher the level of rationality of the players the better the set of obtainable outcomes in this paper we prove this fundamental intuition for players with possibilistic beliefs a model long considered in epistemic game theory specifically we define a sequence of monotonically increasing revenue benchmarks for single good auctions g0 g1 g2 where each gi is defined over the players beliefs and g0 is the second highest valuation i e the revenue benchmark achieved by the second price mechanism we 1 construct a single interim individually rational auction mechanism that without any clue about the rationality level of the players guarantees revenue gk if all players have rationality levels k 1 and 2 prove that no such mechanism can guarantee revenue even close to gk when at least two players are at most level k rational

the effectiveness of english auctions abstract we study the performance of the english auction under different assumptions about the seller s degree of bayesian sophistication we define the effectiveness of an auction as the ratio between the expected revenue it generates for the seller and the expected valuation of the object to the bidder with the highest valuation total surplus we identify tight lower bounds on the effectiveness of the english auction for general private values environments and for private values environments where bidders valuations are non negatively correlated for example when the seller faces 12 bidders who the seller believes have non negatively correlated valuations whose expectations are at least as high as 60 of the maximal possible valuation an english auction with no reserve price generates an expected price that is more than 80 of the value of the object to the bidder with the highest valuation

patents and cumulative innovation causal evidence from the courts cumulative innovation is central to economic growth do patent rights facilitate or impede such follow on innovation this paper studies the effect of removing patent protection through court invalidation on the subsequent research related to the focal patent as measured by later citations we exploit random allocation of judges at the u s court of appeal for the federal circuit to control for the endogeneity of patent invalidation we find that patent invalidation leads to a 50 percent increase in subsequent citations to the focal patent on average but the impact is highly heterogeneous patent rights appear to block follow on innovation only in the technology fields of computers electronics and medical instruments moreover the effect is entirely driven by invalidation of patents owned by large patentees that triggers entry of small innovators suggesting that patents may impede the democratization of innovation

an efficient ascending bid auction for multiple objects when bidders exhibit multi unit demands standard auction methods generally yield inefficient outcomes this article proposes a new ascending bid auction for homogeneous goods such as treasury bills or telecommunications spectrum the auctioneer announces a price and bidders respond with quantities items are awarded at the current price whenever they are clinched and the price is incremented until the market clears with private values this dynamic auction yields the same outcome as the sealed bid vickrey auction but has advantages of simplicity and privacy preservation with interdependent values this auction may retain efficiency whereas the vickrey auction suffers from a generalized winner s curse

alarmist decisions with divergent risk information receipt of multiple sources of risk information ideally should foster sounder decisions under uncertainty this paper s original survey results for environmental risks suggest that the learning process is reasonable in many respects bur it does not accord with a rational bayesian learning model divergent risk assessments from different sources produce extreme violations of rationality as there is inordinate weight on the high risk assessment this alarmist reaction holds for both government and industry information sources this phenomenon may account for the commonly observed phenomenon of public overreaction to highly publicised risks

ex post information in auctions assumptions maskin and riley 1984 show that when the amount a buyer is willing to pay for the auctioned object is not independent of his wealth expected revenue tends to be lower under open bidding in contrast milgrom and weber 1982 relax the assumption that valuations are independent and assume instead that buyers private estimates of the item s value are affiliated a buyer with a high estimate then tends to believe that other buyers will have higher estimates as well maintaining the other assumptions milgrom and weber show that expected revenue is higher in the open ascending bid auction the intuition behind this result is that in sealed high bid auctions a buyer s bid is determined not only by his own beliefs but via their bids by the beliefs of those with lower estimates a buyer with a low estimate believes that others are more likely to have low estimates as well he therefore bids less aggressively it follows that a buyer can beat all opponents who have lower estimates with a bid which is lower than it would be if beliefs were independent 2 milgrom and weber also show that if the seller purchases and then publicly reveals information which is positively linked to buyers valuations this also raises expected gross revenue from an auction the intuition here is that this helps to reduce the difference in bidders willingness to pay 3 that such a reduction should raise expected revenue is easily understood for the limiting case in which the seller s information includes all the buyers private information for then all buyer asymmetry is eliminated and so expected buyer profit is bid away to zero the seller therefore reaps the entire surplus in the following pages the implications of correlated signals are further explored while milgrom and weber emphasized the potential gains to a seller who reveals information ex ante the focus here is on ex post information in section 2 it is shown that under weak assumptions the sealed high bid auction is dominated by any auction

linear inequality methods to enforce partnerships under uncertainty an overview we review different generic conditions on stochastic outcome functions to enforce either efficient or nearly efficient partnerships their logical relationship is explored two kinds of conditions are considered however the property for an action profile to be compatible plays a crucial role in both kinds also two kinds of enforcement mechanisms are considered enforcement through utility transfers and enforcement through repetition

fishing as a supergame abstract this paper considers how cooperative solutions to games of sharing fish resources can be supported by threat strategies with highly mobile fish stocks the number of agents compatible with a cooperative self enforcing solution is not very high for reasonable values of the discount rate but sensitive to changes in the discount rate and costs and to cost heterogeneity with migrating stocks where growth and reproduction depend on how much all agents leave behind after harvesting the likelihood of a cooperative self enforcing equilibrium is increased with a dominant player and a competitive fringe the rents and optimum stock level of the dominant player fall quickly as the share of the competitive fringe increases

correlated information and mechanism design in models of asymmetric information possession of private information leads to rents for the possessors this induces mechanism designers to distort away from efficiency the authors show that this is an artifact of the presumption that information is independently distributed rent extraction in a large class of mechanism design games is analyzed and a necessary and sufficient condition for arbitrarily small rents to private information is provided additionally the two person bargaining game is shown to have an efficient solution under first order stochastic dominance and a hazard rate condition similar conditions allow full rent extraction in milgrom weber auctions

an optimal auction for complements abstract this paper considers the optimal selling mechanism for complementary items when buyers are perfectly symmetric the optimal procedure is to bundle the items and run a standard auction in general however bundling the items is not necessarily desirable and the standard auctions do not maximize revenue moreover the optimal auction allocation may not be socially efficient since the auction must discriminate against bidders who have strong incentives to misrepresent their true preferences journal of economic literature classification number d44

vertical contracting with informational opportunism we consider vertical contracting arrangements between a manufacturer and a retailing network when retailers have private information and the organization is run through bilateral contracts we highlight a new form of informational opportunism arising when the manufacturer manipulates information learned separately in each relationship we characterize the set of allocations robust to such opportunism by means of simple ex post incentive compatibility constraints those constraints limit the manufacturer s ability to use yardstick competition among retailers they simplify contracts and restore a rent efficiency trade off even with correlated information we show that sell out contracts are optimal under a wide range of circumstances

group buying on the web a comparison of price discovery mechanisms web based group buying mechanisms are being widely used for both business to business b2b and business to consumer b2c transactions we survey currently operational online group buying markets and then study this phenomenon using analytical models we build on the literatures in information economics and operations management in our analytical model of a monopolist offering web based group buying under different kinds of demand uncertainty we derive the monopolist s optimal group buying schedule under varying conditions of heterogeneity in the demand regimes and compare its profits with those that obtain under the more conventional posted price mechanism we further study the impact ofproduction postponement by endogenizing the timing of the pricing and production decisions in a two stage game between the monopolist and buyers our results have implications for firms choice of price discovery mechanisms in e markets and for the scheduling of production and pricing decisions in the presence and absence of scale economies of production

non optimality of state by state monopoly pricing with demand uncertainty an example abstract this paper considers a monopoly s profit maximizing problem where there is a continuum of consumers with unit demand and valuations are given by one of two possible demand distributions states the firm s problem is to maximize profits by choosing an optimal mechanism among direct revelation mechanisms that satisfy interim incentive compatibility and ex post individual rationality we show that setting the monopoly price in each demand state may not be optimal

the internationalization of inventive activity a gravity model using patent data this paper discusses the extent and the determinants of the internationalization of european inventive activity between 1990 and 2004 using an innovative method to treat the information contained in the european patent office s patstat database the observed level of internationalization of inventive activities while being rather low has steadily increased over time the amount of collaboration between actors residing in different countries is assessed by means of a gravity model as it is familiar in the literature on international trade the amount of bilateral collaboration is positively affected by the presence of a common language and a common border and by the common participation in the european union participation in the euro zone is also found to have a marginally negative effect international collaboration is negatively affected by distance with estimated elasticities that are significantly smaller than the ones that characterize international trade contrary to the rumors about the death of distance this effect has become stronger in recent years

subgame perfect implementation under information perturbations we consider the robustness of extensive form mechanisms to deviations from common knowledge about the state of nature which we refer to as information perturbations first we show that even under arbitrarily small information perturbations the moore repullo mechanism does not yield even approximately truthful revelation and that in addition the mechanism has sequential equilibria with undesirable outcomes more generally we prove that any extensive form mechanism is fragile in the sense that if a non maskin monotonic social objective can be implemented with this mechanism then there are arbitrarily small information perturbations under which an undesirable sequential equilibrium also exists finally we argue that outside options can help improve efficiency in asymmetric information environments and that these options can be thought of as reflecting ownership of an asset

incentives and the existence of pareto optimal revelation mechanisms abstract from the characterization of strongly and bayesian incentive compatible paretooptimal mechanisms with transferable utilities we derive the following results if there are only two types per individual then a strongly incentive compatible paretooptimal mechanism exists if there are only two individuals with more than three types then there are sets of beliefs open in the class of all beliefs for which no bayesian incentive compatible pareto optimal mechanism exists if there are more than two individuals then the class of beliefs for which such mechanisms exist is open and dense in the class of all beliefs

learning about the future and dynamic efficiency we analyze the conditions under which an efficient allocation of resources is achievable in a dynamic private values setting where the designer gradually learns about the distribution of agents values as an application consider the sequential allocation of scarce spectrum to emerg ing technologies whenever a new technology appears a benevolent designer is faced with a problem should he allocate a valuable chunk of spectrum right now while forfeiting for a long period of time the option of allocating it to a possibly superior future technology it makes sense to assume here that current firms have a better knowledge of their technological prow ess than the designer and that the designer s assessment of future technological possibilities is improved by observing the current technology if technology owners are strategic we show below that the learning process about the future disturbs the ability to extract the information necessary for efficient decision making another good example is hiring by an organization that fills positions at different hierarchy levels over time while all candidates prefer higher level positions some aspect of their ability to perform the needed tasks at each level is privately known to the candidates if contracts with current employees are difficult to adjust the designer must carefully compare the quality of present candidates which can serve as a signal about the market to the expected quality of candidates that may become available in the future finally consider a firm allocating franchises in a country where it did not operate before and where contractual clauses or other impediments prevent reallocation during a significant period of time local potential franchisees may have some superior information regarding future prof itability in the respective market and hence the elicitation of private information is crucial for a franchisor that is supposed to get a share of the future profits

optimal use of correlated information in mechanism design when full surplus extraction may be impossible we study the mechanism design problem when the principal can condition the agent s transfers on the realization of ex post signals that are correlated with the agent s types cremer and mclean econometrica 53 1985 345 361 56 1988 1247 1257 mcafee and reny econometrica 60 2 1992 395 421 and riordan and sappington j econ theory 45 1988 189 199 studied situations where the signals are such that full surplus can be extracted from every agent type we study optimal utilization of the signals when there are fewer signals than types and the riordan and sappington conditions do not always hold for some special cases we show the level of surplus that can be extracted and identify the agent types who obtain rent

efficient auctions and interdependent types we consider the efficient allocation of a single good with interdependent values in a quasi linear environment we present an approach to modeling interdependent preferences distinguishing between payoff types and belief types and report a characterization of when the efficient allocation can be partially bayesian implemented on a finite type space the characterization can be used to unify a number of sufficient conditions for efficient partial implementation in this classical auction setting we report how a canonical language for discussing interdependent types developed in a more general setting by bergemann morris and takahashi 2011 applies in this setting and note by example that this canonical language will not allow us to distinguish some types in the payoff type belief type language

the relevance of private information in mechanism design abstract recent results in mechanism design show that as long as agents have correlated private information and are sufficiently risk neutral it is possible to design mechanisms that leave agents with arbitrarily small information rents we show that these full rent extraction results hinge on the implicit assumption that the agents beliefs uniquely determine their preferences we present an example of the voluntary provision of a public good in which this assumption is relaxed and consequently even in highly correlated environments if agents beliefs do not uniquely determine their preferences then the extraction of the agents entire information rents is impossible

decentralization externalities and efficiency in the competitive model externalities lead to inefficiencies and inefficiencies increase with the size of externalities however as argued by coase these problems may be mitigated in a decentralized system through voluntary coordination we show how coordination is limited by the combination of two factors respect for individual autonomy and the existence of private information together they imply that efficient outcomes can only be achieved through coordination when external effects are relatively large moreover there are instances in which coordination cannot yield any improvement at all despite common knowledge that social gains from agreement exist this occurs when external effects are relatively small and this may help to explain why coordination is so seldom observed in practice when improvements are possible we describe how simple subsidies can be used to implement second best solutions and explain why standard solutions such as pigovian taxes cannot be used possible extensions to issues arising in the structure of research joint ventures assumptions in the endogenous growth literature and the location of environmental hazards are also described

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

trade flows in a spatial oligopoly gravity fits well but what does it explain large distance and border effects on trade flows in some industries may result from the collusive division of geographic markets in the brazilian cement industry traditional gravity equations fit the data well yet limited regional flows are due to firms strategic behaviour thanks to a unique institutional setting and an unusually rich data set i directly control for trade costs which despite their importance cannot account for the observed segmentation of local markets at current prices the paper highlights how collusive behaviour can magnify the effects of distance as firms use geography to coordinate on higher prices and less cross hauling les effets de grande distance et de frontieres sur les flux de commerce dans certaines industries peuvent etre le resultat d une division collusive des marches geographiques dans l industrie bresilienne du ciment les equations de gravite s ajustent bien aux donnees mais les flux regionaux limites entre regions sont attribuables au comportement strategique des firmes gr ce a un contexte institutionnel unique et a une base de donnees inhabituelles l auteur a pu prendre en compte directement les couts du commerce qui malgre leur importance ne peuvent pas expliquer la segmentation observee des marches locaux aux prix courants le memoire met en lumiere comment le comportement de collusion peut magnifier les effets de distance a proportion que les firmes utilisent la geographie pour assurer une coordination fondee sur des prix plus eleves et moins de transport transfrontalier

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

comarketing alliances should you contract on actions or outcomes comarketing alliances often involve multiple partners and a given partner s marketing efforts on behalf of the alliance can indirectly affect the demand of the other partners individual partners however can ignore the effects of such an externality and invest suboptimally to the detriment of the alliance this paper examines the relative effectiveness of outcome and action based contracts in providing the alliance partners with the incentives to invest appropriately we develop a mathematical model in which a focal firm e g sony contracts with two partners e g mcdonald s and old navy when each of these partners is privately informed about the impact of the alliance on its demand our analysis evaluates the strengths and weaknesses of outcome or output and action based or input based contracts in settings with varying levels of the demand externality we find that when there is either no externality or a relatively weak positive externality there is a strict preference for output based contracts that preference however is reversed with a sufficiently strong positive externality this paper explains the underlying rationale for these findings this paper was accepted by preyas desai marketing

extraction of surplus under adverse selection the case of insurance markets abstract we consider a principal agent setting with two types of risk averse agents with different abilities to avoid losses abilities types are characterized by two distributions f and g which are agents private information all agents have the same increasing and strictly concave utility function u under which g has a higher certainty equivalent in this environment we derive a characterization of pairs of distributions under which a first best outcome can be achieved or approximated we prove that a first best outcome can be achieved if and only if the distribution f is not absolutely continuous with respect to the distribution g if this condition is not satisfied the first best outcome can be approximated arbitrarily close if and only if the likelihood ratio df dg is unbounded journal of economic literature classification number d82

does the internet defy the law of gravity abstract we show that gravity holds in the case of digital goods consumed over the internet that have no trading costs therefore trade costs cannot fully account for the effects of distance on trade in particular we show that americans are more likely to visit websites from nearby countries even controlling for language income immigrant stock etc furthermore we show that this effect only holds for taste dependent digital products such as music games and pornography for these a 1 increase in physical distance reduces website visits by 3 25 for non taste dependent products such as software distance has no statistical effect

implementing the efficient allocation of pollution we provide simple mechanisms to implement the efficient allocation of pollution first assuming complete information across firms and then allowing for incomplete information both mechanisms operate by inducing firms to monitor one another using firms reports to determine pollution allotments and transfers the complete information mechanism determines a firm s transfer according to a linear pollution price set by other firms both mechanisms can be modified to be budget balanced in and out of equilibrium the complete information mechanism implements the efficient allocation even when firms are allowed to use mixed strategies under a single crossing condition the same holds for the incomplete information mechanism this abstract was borrowed from another version of this item

pollution claim settlements under correlated information abstract agents have to decide whether a polluting plant will be operated or not agents disutility cost from pollution is privately known but correlated across agents incentive compatible mechanisms are characterized under the assumption that transfer payments are non negative the implementability constraint is similar to the independence case except that virtual utilities are diminished by a factor due to the correlation of agents types as correlation vanishes the implementability constraint approaches the implementability constraint of the independent types environment it is established that the free riding problem is relaxed as the number of agents increases with many agents ex post efficiency is achievable under ex ante budget balance journal of economic literature classification numbers d82 h41

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

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

e commerce readiness institutional environment and international competitiveness a systematic cross country analysis of e commerce activity reveals that although physical infrastructure explains much of the variation in basic internet use e commerce activity also depends significantly on a supportive institutional environment chief among the characteristics of such an environment are national respect for the rule of law and secondarily the availability of credible payment channels such as credit cards these results suggest that an institutional environment that facilitates the building of transactional integrity is critical to the development of e commerce

eliciting informative feedback the peer prediction method many recommendation and decision processes depend on eliciting evaluations of opportunities products and vendors a scoring system is devised that induces honest reporting of feedback each rater merely reports a signal and the system applies proper scoring rules to the implied posterior beliefs about another rater s report honest reporting proves to be a nash equilibrium the scoring schemes can be scaled to induce appropriate effort by raters and can be extended to handle sequential interaction and continuous signals we also address a number of practical implementation issues that arise in settings such as academic reviewing and online recommender and reputation systems

there goes gravity ebay and the death of distance we compare the effect of geographic distance on ebay and total international trade flows we consider the same 61 countries and basket of goods for both types of transactions we find the effect of distance to be on average 65 smaller on ebay we argue this difference is due to a reduction in search costs it increases with product differentiation and is higher when trade partners speak different languages when corruption in the exporting country is high and when uncertainty avoidance is high in the importing country moreover ebay s seller rating technology further reduces the distance effect on ebay

informational size and efficient auctions we develop an auction model for the case of interdependent values and multidimensional signals in which agents signals are correlated we provide conditions under which a modification of the vickrey auction which includes payments to the bidders will result in an ex post efficient outcome furthermore we provide a definition of informational size such that the necessary payments to bidders will be arbitrarily small if agents are sufficiently informationally small the efficiency of market processes has been a central concern in economics since its inception auction mechanisms constitute a very important class of market processes yet the analysis of auctions has typically focused on their revenue generating properties rather than their efficiency properties this is partly due to the fact that for many of the problems typically studied efficiency is trivial when bidders have private values a standard vickrey auction guarantees that the object will be sold to the buyer with the highest value for the object in the case of pure common values that is when all buyers have the same value for the object any outcome that with probability one assigns the object to some bidder will be efficient the intermediate case in which bidders values are not identical but may depend on other bidders signals is more problematic when bidders values are interdependent in this way any single bidder s value may depend on the information of other agents and hence he may not even know his own value it is not clear what it would mean for an agent to bid his true value even before we ask if it is optimal for him to do so several papers have studied efficient auctions with interdependent values and independent types 1 while this is a natural place to begin the independence assumption is not compelling for many problems a prototypical problem is one in which an object is to be sold and individual bidders have private information about the object say the quantity or quality of oil in a tract to be sold that affects other agents values for the object when bidders types include information about objective characteristics of the object being sold their types will typically not be independent when agents types are statistically dependent we show that there exist efficient auction mechanisms for interdependent value auction problems that are essentially vickrey auctions augmented by payments to not from the agents most importantly we link the

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

the recursive core core allocations may be defined for infinite horizon capital accumulation models if agents cannot trust each other in the sense of gale then agents may renege on their commitments their decisions appear time inconsistent a core allocation is a recursive core allocation provided no coalition can improve upon its consumption stream at any time given its accumulation of assets up to that period we show for every allocation of consumption in the initial core one can find a distribution of capital stocks among the agents where no coalition of agents will break the initial core contract at any date it follows that if the proper distribution of the streams of capital is achieved then the allocation in the core is also in the recursive core the latter therefore forges a link between the distribution of wealth capital the problem of trust and time consistent intertemporal contracts

an efficient multi unit ascending auction we provide an ascending auction that yields an e cient outcome when there are many identical units for sale and bidders have interdependent values and downward sloping demand our ascending auction both extends and generalizes ausubel s 1997 and yields the same outcome as perry and reny s 2000 generalization of vickrey s 1961 sealed bid auction there are two key components to our auction bidders are permitted both to

incomplete information and optimal market structure public purchases from private providers abstract market structure is endogenized in a normative model of public procurement featuring a social cost of profit product variety economies of scale and incomplete information about cost depending on parameters either sole sourcing or dual sourcing might be optimal however if the social cost of profit is positive but not too large incomplete information biases optimal market structure in favor of sole sourcing on the other hand this bias in favor of sole sourcing may be reversed if the social cost of profit is large an application to the publicly financed treatment for drug abuse motivates the analysis

globalization countries cities and multinationals mccann p and acs z j globalization countries cities and multinationals regional studies this paper explores the relationship between the size of a country the size of its cities and the importance of economies of scale in the modern era of globalization in order to do this it integrates three different literatures namely the literature on the optimal size of a country the literature on historical processes of urbanization and the performance of cities and the literature on the role of multinational firms in the global economy using an economic geography perspective but looking at these issues through the lens of economic history it is demonstrated that the importance of agglomeration effects and in particular relationship between city size and the prosperity of the nation state has changed over the different eras of globalization in earlier eras of globalization the importance of agglomeration was represented by a fairly simple relationship between the scale of the city and the scale