spurious volatility in historical unemployment data this paper shows that the stabilization of the unemployment rate between the pre 1930 and post 1948 eras is an artifact of improvements in data collection procedures prewar methods are used to construct postwar unemployment data that are consistent with the historical data the constructed postwar series is nearly as volatile as the pre 1930 unemployment data the constructed postwar data are systematically more volatile than the actual postwar data because the cyclical behavior of the labor force and productivity are misspecified in the construction procedures the relationship between the actual and constructed postwar unemployment series is used to construct new historical data

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

an empirical analysis of entrant and incumbent bidding in road construction auctions this paper explores differences in the bidding patterns of entrants and incumbents in road construction auctions we find that entrants bid more aggressively and win auctions with significantly lower bids than incumbents the differences in their bidding patterns are consistent with a model of auctions in which the distribution of an entrant s costs exhibits greater dispersion than that of an incumbent s and relations of stochastic dominance in the distributions do not persist for the entire range of estimated costs we also find that more efficient firms bid on average more aggressively and firms with greater backlogs bid less aggressively

a comparison of buyer determined and price based multiattribute mechanisms reverse auctions are fast becoming the standard for many procurement activities in the past the majority of such auctions have been solely price based but increasingly attributes other than price affect the auction outcome specifically the buyer uses a scoring function to compare bids and the bid with the highest score wins we investigate two mechanisms commonly used for procurement in business to business markets in a setting in which buyers welfare is affected by exogenous nonprice attributes such as the quality service and past relationships under both mechanisms bidders bid based on price but in the buyer determined mechanism the buyer is free to select the bid that maximizes her surplus while in the price based mechanism the buyer commits to awarding the contract to the low price bidder we find both in theory and in the laboratory that the buyer determined mechanism increases the buyer s welfare only as long as enough suppliers compete if the number of suppliers is small and the correlation between cost and quality is low the buyer is better off with the price based mechanism these findings are intended to help procurement managers make better decisions in designing procurement mechanisms for a variety of settings

international income inequality measuring ppp bias by estimating engel curves for food there are large differences between rich and poor people in the world this is of major concern to economists as well as to policy makers the magnitude of the dif ferences however depends on the measure used for comparisons to illustrate per capita income in china is more than five times larger if one uses penn world table pwt 1 incomes rather than exchange rate based ex incomes in this paper we study pwt incomes which aim at correcting for price level dif ferences across countries and identify the bias in them by estimating engel curves for food furthermore we study the relationship between the bias and the income of a country the pwt produces purchasing power parity ppp adjusted incomes and thus the associated bias is referred to as the ppp bias having estimated the bias in pwt incomes we provide new estimates of real income and refer to these as the engel curve ec incomes by comparing the estimated ec incomes and the pwt incomes the issue of how the bias influences estimated inequality is discussed finally we discuss whether ex incomes which simply transform each country s nominal income into one common currency provide better estimates of income than do pwt incomes this paper reports three main findings first there is substantial and systematic ppp bias in the pwt incomes the poorer the country the more its income tends to be overestimated 2 second the ppp bias causes a substantial and robust underesti mation of international inequality the gini index increases substantially when one adjusts for the bias third whereas pwt incomes provide better estimates than the ex incomes for the richer countries the ex incomes which implicitly assume that ppp holds provide better estimates for the poorer countries as we know that price levels differ across countries there is consensus that the seminal work on establishing the pwt was a well founded initiative and the data have been extensively used 3 still although many studies rely on pwt data few focus on the ppp bias in this dataset some contributors focus on one component of the bias however the so called substitution bias and use macro data to measure this

an exploration of the changes in the international comparison program s global economic landscape abstract the purchasing power parity ppp rates from the 2011 round of the international comparison program icp imply some dramatic revisions to price levels and real incomes across the world as compared to the prior 2005 round this has important implications for many cross country comparisons including measures of poverty and inequality without presuming that either round is better methodologically the paper tries to help the community of icp users better understand the economic factors underlying the estimated changes in price levels across countries differences in domestic inflation rates have played a role as expected two other factors are identified the excess sensitivity to changes in market exchange rates suggests that the ppps may put higher weight on internationally traded goods than do domestic deflators additionally faster growing countries have seen a steeper rise in their ppp relative to market exchange rates this can be explained by a tendency for wage increases in growing economies to lead to a higher price level together these factors account for over 70 of the variance in ppp changes even ignoring methodological changes however an independent downward drift in price levels is also evident concentrated in the icp s asia region a possible explanation lies in the asia region s greater success relative to other regions in removing urban bias in the price surveys

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

e sourcing in procurement theory and behavior in reverse auctions with noncompetitive contracts one of the goals of procurement is to establish a competitive price while affording the buyer some flexibility in selecting the suppliers to deal with reverse auctions do not have this flexibility because it is the auction rules and not the buyer that determines the winner in practice however hybrid mechanisms that remove some suppliers and a corresponding amount of demand from the auction market are quite common we find that in theory such hybrid mechanisms increase competition and make buyers better off as long as suppliers are willing to accept noncompetitive contracts it turns out that suppliers often do because under a wide variety of conditions these contracts have a positive expected profit our theory relies on two behavioral assumptions 1 bidders in a multiunit uniform price reverse auction will follow the dominant strategy of bidding truthfully and 2 the suppliers who have been removed from the market will accept noncompetitive contracts that have a positive expected profit our experiment demonstrates that bidders in the auction behave very close to following the dominant strategy regardless of whether this auction is a stand alone or a part of a hybrid mechanism we also find that suppliers accept noncompetitive contracts sufficiently often although not always to make the hybrid mechanism outperform the reverse auction in the laboratory as well as in theory

moral hazard in insurance value based cost sharing and the benefits of blissful ignorance the conventional theory of optimal coinsurance rates for health insurance with moral hazard indicates that coinsurance should vary with the price responsiveness or price elasticity of demand for different medical services an alternative theory called value based cost sharing indicates that coinsurance should be lower for services with higher marginal benefits relative to costs this paper reconciles the two views it shows that if patient demands are based on correct information optimal coinsurance is the same under either theory if patient demands differ from informed demands optimal coinsurance depends both on information imperfection and price responsiveness value based cost sharing can be superior to providing information even if the cost of information is minimal when patient demands fall short of informed demands an extended numerical example illustrates these points

vertical scope turbulence and the benefits of commitment and flexibility we address the contested state of theory and the mixed empirical evidence on the relationship between turbulence and vertical scope by studying how turbulence affects the benefits of commitment from integrated development of components and the benefits of flexibility from sourcing components externally we show that increasing turbulence first increases but then decreases the relative value of vertical integration moderate turbulence reduces the value of flexibility by making supplier selection more difficult and increases the value of commitment by mitigating the status quo bias of integrated structures both effects improve the value of integration higher levels of turbulence undermine the adaptive benefits of commitment but have a less adverse effect on flexibility making nonintegration more attractive we also show how complexity and uneven rates of turbulence moderate the nonmonotonic relationship between turbulence and integration this paper was accepted by jesper sorensen organizations

mathematical programming for the efficient allocation of health care resources previous discussions of methods for the efficient allocation of health care resources subject to a budget constraint have relied on unnecessarily restrictive assumptions this paper makes use of established optimization techniques to demonstrate that a general mathematical programming framework can accommodate much more complex information regarding returns to scale partial and complete indivisibility and program interdependence methods are also presented for incorporating ethical constraints into the resource allocation process including explicit identification of the cost of equity

why are services cheaper in the poor countries in their important work on international comparisons of national incomes and of comparative price structure kravis heston and summers i982 p 8 have noted that services are much cheaper in the relative price structure of a typical poor country than in that of a rich country this phenonomen has been documented now fairly systematically by the data gathered under their guiding hand of the united nations international comparison icp which covers 34 countries table i reproduced from their work i982 and fig i based on rows 3 and ii 13 indeed show this tendencyfor the relationship between relative service prices and real per capita gdp in this kravis heston summers 34 country 6 group sample the tendency is strongly evident except for the intermediate groups iii and iv

the developing world is poorer than we thought but no less successful in the fight against poverty a new data set on national poverty lines is combined with new price data and almost 700 household surveys to estimate absolute poverty measures for the developing world we find that 25 of the population lived in poverty in 2005 as judged by what poverty typically means in the world s poorest countries this is higher than past estimates substantial overall progress is still indicated the corresponding poverty rate was 52 in 1981 but progress was very uneven across regions the trends over time and regional profile are robust to various changes in methodology though precise counts are more sensitive

economics of individualization in comparative effectiveness research and a basis for a patient centered health care the united states aspires to use information from comparative effectiveness research cer to reduce waste and contain costs without instituting a formal rationing mechanism or compromising patient or physician autonomy with regard to treatment choices with such ambitious goals traditional combinations of research designs and analytical methods used in cer may lead to disappointing results in this paper i study how alternate regimes of comparative effectiveness information help shape the marginal benefits demand curve in the population and how such perceived demand curves impact decision making at the individual patient level and welfare at the societal level i highlight the need to individualize comparative effectiveness research in order to generate the true normative demand curve for treatments i discuss methodological principles that guide research designs for such studies using an example of the comparative effect of substance abuse treatments on crime i use novel econometric methods to salvage individualized information from an existing dataset

welfare implications of learning through solicitation versus diversification in health care using roy s model of sorting behavior i study welfare implications of learning about medical care quality through the current health care data production infrastructure that relies on solicitation of research subjects due to severe adverse selection issues i show that such learning could be biased and welfare decreasing direct diversification of treatment receipt may solve these issues but is infeasible unifying manski s work on diversified treatment choice under ambiguity and heckman s work on estimating heterogeneous treatment effects i propose a new infrastructure based on temporary diversification of access that resolves the prior issues and can identify nuanced effect heterogeneity

the growing gap between rich and poor countries a proposed explanation abstract making use of data in the penn world table mark 5 this study seeks to explain the widely reported pattern of increasing divergence of per capita income levels between high and low income countries and among low income countries tests based on one on one comparisons of real growth in 1960 1988 with starting levels of income per capita imply that increasing divergence of per capita income levels was largely due to differences between population growth and labor force growth that varied with income level further evidence is provided in the form of crosscountry growth regressions in which with population growth divided into labor force growth and the amount by which population growth exceeds labor force growth only the part of population growth that represents changes in the dependency ratio is closely linked to long term growth

evaluating the econometric evaluations of training programs with experimental data this paper takes the results of an employment and training program thatwas run as a field experiment in which the participants were randomlyassigned into a treatment or a control group and compares these results to the estimates that might have been produced by an econometrician who evaluated the program using the same econometric procedures that have been used in the program evaluation literature this comparison shows that many of these econometric procedures fail toreplicate the experimentally determined results and suggests that researchers should be aware of the potential for specification errorsin other nonexperimental evaluations copyright 1986 by american economic association

bidding between incumbent and entrant abstract facing an informed incumbent who has cost advantages in two different states the uninformed entrant bids cautiously due to the incumbent s cost advantage in the low cost state the incumbent bids aggressively earning additional profits because of his cost advantages

absolute poverty when necessity displaces desire abstract this paper proposes a new method for defining an international poverty line based on explicit budgeting the novel feature is that linear programming is used to deduce the diet that minimizes cost and guarantees survival nonfood items are also explicitly budgeted and amount to about one quarter of the cost of subsistence a series of least cost diets are calculated with increasingly demanding nutritional requirements for twenty countries using prices from icp 2011 the aim is to see which requirements rationalize the spending pattern of the poor the reduced basic model does the job when the cost of the nonfood items are added to the cost of the reduced basic diet the resulting linear programming poverty line lppl averages 1 88 per day across the poor countries in the sample the same model rationalizes both the spending pattern of the poor and the world bank poverty line the lppl has the advantages that it is 1 clearly related to survival and well being 2 comparable across time and space since the same nutritional requirements are used everywhere 3 adjusts consumption patterns to local prices 4 presents no index number problems since solutions are always in local prices and 5 requires only readily available information namely the prices in icp or equivalent

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

auctions with anticipated regret theory and experiment this paper demonstrates theoretically and experimentally that in first price auctions overbidding with respect to the risk neutral nash equilibrium might be driven from anticipated loser regret felt when bidders lose at an affordable price different information structures are created to elicit regret bidders know they will learn the winning bid if they lose loser regret condition or the second highest bid if they win winner regret condition or they will receive no feedback regarding the other bids bidders in loser regret condition anticipated regret and significantly overbid however bidders in the winner regret condition did not anticipate regret jel d44

health insurance the tradeoff between risk pooling and moral hazard choosing optimal health insurance coverage involves a trade off between the gain from risk reduction and the deadweight loss from moral hazard this paper examines this trade off empirically by estimating both the demand for health insurance and the demand for health services it relies on data from a randomized controlled trial of cost sharing s effects on the use of health services and on the health status for a general non elderly population

how sensitive is regional poverty measurement in latin america to the value of the poverty line this paper contributes to the methodological literature on the estimation of international poverty lines for latin america based on the official poverty lines chosen by the latin american governments and commonly used in the public debate the paper exploits a comprehensive data set of 86 up to date official extreme and total urban poverty lines across 18 countries in latin america as well as the recently updated values of the national purchasing power parity conversion factors from the 2011 international comparison program and a set of harmonized household surveys by using 3 and 6 us dollars per person a day at 2011 ppp as the extreme and total poverty lines for latin america this paper illustrates the sensitiveness of poverty rates to changes of the values of the poverty lines as a result of the recent update of the ppp values the period of reference and the relative cost of living across the countries in the region the poverty lines with the 2011 ppp values lead to an increase in total poverty rates in latin america when compared to the 2005 ppp values while they leave the extreme poverty rate unaffected in general country specific poverty rankings remain fairly stable to the values of the poverty lines selected

an experimental investigation of the seller incentives in the epas emission trading auction the clean air act requires the epa to conduct annual auctions of emission allowances under the discriminative auction rules sellers with the lowest asking prices receive the highest bids this paper studies an inverted version of this auction in which buyers face the same incentives as sellers in the epa auction consistent with theoretical predictions buyers bid above their valuation auction outcomes are inefficient and increasing the number of buyers increases bids buyers facing human opponents compete more aggressively than the risk neutral prediction but bids do not differ systematically from this prediction when buyers face computerized nash robots copyright 1995 by american economic association

when does it pay to delay supplier qualification theory and experiments we study a procurement setting in which the buyer seeks a low price but will not allocate the contract to a supplier who has not passed qualification screening qualification screening is costly for the buyer involving product tests site visits and interviews in addition to a qualified incumbent supplier the buyer has an entrant of unknown qualification the buyer wishes to run a price only open descending reverse auction between the incumbent and the entrant and faces a strategic choice about whether to perform qualification screening on the entrant before or after the auction we analytically study the buyer s optimal strategy accounting for the fact that under postauction qualification the incumbent knows he could lose the auction but still win the contract in our analysis we derive the incumbent s optimal bidding strategy under postauction qualification and find that he follows a threshold structure in which high cost incumbents hold back on bidding or even boycott the auction to preserve their profit margin and only lower cost incumbents bid to win these results are strikingly different from the usual open descending auction analysis where all bidders are fully qualified and bidding to win is always a dominant strategy we test our analytical results in the laboratory with human subjects we find that qualitatively our theoretical predictions hold up quite well although incumbent suppliers bid somewhat more aggressively than the theory predicts making buyers more inclined to use postauction qualification this paper was accepted by martin lariviere operations management

rfq auctions with supplier qualification screening we consider a manufacturer using a request for quotes rfq reverse auction in combination with supplier qualification screening to determine which qualified supplier will be awarded a contract supplier qualification screening is costly for the manufacturer for example involving reference checks financial audits and on site visits the manufacturer seeks to minimize its total procurement costs i e the contract payment plus qualification costs although suppliers can be qualified prior to the auction prequalification we allow the manufacturer to delay all or part of the qualification until after the auction postqualification using an optimal mechanism analysis we analytically explore the trade offs between varying levels of pre and postqualification although using postqualification causes the expected contract payment to increase bids from unqualified suppliers are discarded we find that standard industrial practices of prequalification can be improved upon by judicious use of postqualification particularly when supplier qualification screening is moderately expensive relative to the value of the contract to the manufacturer

differences in relative prices and international differences in growth rates the new growth literature following paul m romer 1986 and robert e lucas jr 1988 has formulated models in which growth rates can differ systematically across countries a large empirical literature has used cross sectional techniques to examine the cause of international differences in growth rates this paper examines whether this work has used data which have been constructed in such a way as to introduce inadvertently a spurious correlation between growth and income levels this effect occurs because relative prices evolve because of different rates of technological progress in different industries many of the new growth models assume single goods or goods produced by the same technology so this phenomenon has so far escaped analysis if technological progress is more rapid in some sectors than others relative prices will change during the process of development the change of relative prices has two effects on measured growth rates first the choice of base prices affects the growth rate this phenomenon is sometimes called the gerschenkron effect second using any base prices or weights introduces a spurious correlation between income and growth less developed countries would tend to have lower growth rates not because they grew more slowly but because of data construction techniques for the sake of simplicity these phenomena will be called the gerschenkron or the level effect and the spurious correlation effect 3 this paper examines the international comparison program icp and the penn world tables pwt which are based on the icp the penn world tables are the data most widely used in empirical studies of international differences in economic growth both the icp and pwt use international prices to adjust for differences in the purchasing power of currencies these prices most closely resemble hungarian prices using such prices tends to produce time series with lower growth rates than those in the national accounts for countries less developed than hungary conversely the growth rates would be higher for countries more developed than hungary however the growth rates of poorer countries are not systematically lower in the penn world tables the paper examines why the growth rates are not distorted and makes some specific recommendations for data construction and use virginia polytechnic institute and state university blacksburg va 24061 0316 part of this work was supported by a grant from the institute of international studies at brown university and by a summer internship at the division of international finance at the federal reserve board i am grateful to peter garber david weil oded galor and anonymous referees for helpful comments alan heston and robert summers have also helped me understand icp and pwt methodology of course i alone am responsible for any mistakes in this paper iexamples include steve dowrick and duc tho nguyen 1989 robert j barro 1991 j bradford de long and lawrence h summers 1991 and n gregory mankiw et al 1992 2a series of papers by christina d romer 1986a b 1989 has already emphasized the importance of data construction techniques in another context 3there is a third effect a real acceleration effect caused by shifting consumption patterns and the reallocation of resources between sectors growth accountants such as angus maddison 1987 adjust estimates of total factor productivity for this sort of shift william j baumol et al 1989 have also referred to this phenomenon for an analysis in terms of a simple multisector solow model see nuxoll 1992a

better faster cheaper an experimental analysis of a multiattribute reverse auction mechanism with restricted information feedback the majority of reverse auctions for procurement use a single attribute price format while providing constraints on nonprice attributes such as quality and lead time alternatively a buyer could choose to conduct a multiattribute auction where bidders can specify both a price and levels of nonprice attributes while such an auction may provide higher theoretical utility to the buyer it is not clear that this theoretical improvement will be realized given the increased complexity of the auction in this research we present an ascending auction mechanism for a buyer whose utility function is known and dependent on three attributes motivated by a supply chain procurement problem setting we consider quality and lead time for the two attributes in addition to price the auction mechanism provides the bidders with restricted feedback regarding the buyer s utility function we explore experimentally the performance of this multiattribute auction mechanism as compared to a price only auction mechanism compared with the price only auction we find that our mechanism design is effective in increasing both buyer utility and bidder supplier profits