out of step out of office electoral accountability and house members voting does a typical house member need to worry about the electoral ramifications of his roll call decisions we investigate the relationship between incumbents electoral performance and roll call support for their party controlling for district ideology challenger quality and campaign spending among other factors through a series of tests of the 1956 1996 elections the tests produce three key findings indicating that members are indeed accountable for their legislative voting first in each election an incumbent receives a lower vote share the more he supports his party second this effect is comparable in size to that of other widely recognized electoral determinants third a member s probability of retaining office decreases as he offers increased support for his party and this relationship holds for not only marginal but also safe members

reputation and impermanent types i consider a version of the chain store game where the incumbent firm s type evolves according to a markov process with two states a tough type who always fights entry and a weak type who prefers to accommodate there exists a minimal level of persistence necessary for the incumbent to be able to sustain any reputation for being tough above that level as the number of markets t increases in equilibrium play alternates between intervals of entry by competitors and intervals of deterrence when t is infinite then regardless of the discount factor there exists a sequential equilibrium in which the incumbent s payoff is bounded below her stackelberg payoff both results are in contrast to the outcome when the incumbent s type is fixed one interpretation is that reputation is not permanent but must be renewed occasionally

observable reputation trading is the reputation of a firm tradable when the change in ownership is observable we consider a competitive market in which a share of owners must retire in each period new owners bid for the firms that are for sale customers learn the owner s type which reflects the quality of the good or service provided through experience after observing an ownership change they may want to switch firm however in equilibrium good new owners buy from good old owners and retain high value customers hence reputation is a tradable intangible asset although ownership change is observable

reputation and prices on the e market evidence from a major french platform we use an exhaustive data set from one of france s largest e commerce platforms priceminister com to estimate a statistical causal effect of a seller s reputation rating and size on transaction prices we go beyond the results currently available by tackling the issue of seller unobserved heterogeneity and the dynamics of reputation in price equations we can also produce results for a large range of product categories books cds video games or dvds product conditions used or new and seller types individual or professional sellers our results show large scale empirical evidence of a significant positive and strong effect of seller reputation on prices

tax policy and yardstick voting in flemish municipal elections recent theoretical papers develop political agency models in which voters compare tax policy with that in neighbouring jurisdictions in these yardstick competition models voters judge incumbents by comparing their policy with policy in neighbouring jurisdictions this paper reports an analysis of municipal elections in flanders during the period 1982 to 2000 and finds empirical evidence for yardstick voting incumbents are punished for higher tax rates importantly the electoral punishment also depends on tax rates in neighbouring municipalities higher rates in neighbouring municipalities are favourable for the incumbents

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

is voter competence good for voters information rationality and democratic performance a long research tradition in behavioral political science evaluates the performance of democracy by examining voter competence this literature got its start arguing that voters lack of information undermines a defense of democracy rooted in electoral accountability a more recent literature deepens the debate with some authors claiming that voters eectively use cues to substitute for information about candidates and policies and other authors claiming that voters are insuciently rational to do so we argue that regardless of its conclusions about voter competence this literature s singleminded focus on voter behavior is misguided we use a sequence of formal models to show that traditional intuitions are incomplete because they ignore the eect that changes in voter behavior have on the equilibrium behavior of politicians when this strategic interaction is taken into account increases in voter information or voter rationality sometimes make democratic performance better and sometimes makes democratic performance worse one simply cannot assess the implications of voter characteristics for democratic performance without also studying how those characteristics aect the

great expectations financialization and bank bailouts in democracies accelerating financialization and rising societal wealth have meant that democratic governments increasingly provide bailouts following banking crises using a new long run data set we show that despite frequent and virulent crises before world war ii bank bailouts to protect wealth were then exceptionally rare in recent decades by contrast governments have increasingly opted for extensive bailouts well before the major interventions of 2007 2009 we argue that this policy shift is the consequence of the great expectations of middle class voters overlooked in existing accounts associated with the growing financialization of wealth rising leverage and accumulating ex ante financial stabilization commitments by governments these expectations are suggestive of substantially altered policy preferences and political cleavages since the 1970s when severe banking crises returned as an important threat to middle class wealth this pressure from below has led elected governments to provide increasingly costly bailouts with no historical precedent

health and democracy in spite of the inexorable march of democracy around the globe just how democratic institutions a ect human well being is open to debate the evidence that democracy promotes prosperity is neither strong nor robust moreover which aspects of policy making and human well being are promoted by democracies is still a subject of debate 1 even if correlations between democracy and outcome measures can be found there is an overriding di culty of interpreting them as causal e ects whether democracy matters per se or simply serves as a proxy for societal and political development presents a di cult problem for research in this area thinkers such as lipset 1959 have argued that democracy can thrive only when conditions are right if this is correct then becoming democratic may only serve as a proxy for these hard to measure cultural and societal preconditions this paper explores these issues further by reconsidering the link between democracy and health using panel data from a cross section of countries the

a fractionally cointegrated var analysis of economic voting and political support we use a fractionally cointegrated vector autoregressive model to examine the relationship between canadian political support and macroeconomic conditions this model is well suited for the analysis because it allows multiple fractional time series and admits simple asymptotic inference for the model parameters and tests of the hypotheses of interest in the long run equilibrium we find that support for the progressive conservative party was higher during periods of high interest rates and low unemployment while support for the liberal party was higher during periods of low interest rates and high unemployment we also test and reject the notion that party support is driven only by relative to the united states economic performance indeed our findings suggest that us macroeconomic variables do not enter the long run equilibrium of canadian economic voting political opinion poll support at all resume une application du modele vecteur autoregressif fractionnellement cointegre sur le vote economique et le support politique on utilise un modele du type vecteur autoregressif fractionnellement cointegre pour examiner la relation entre le support politique canadien et les conditions macroeconomiques le modele est bien adapte a l analyse parce qu il permet l usage de multiples series chronologiques fragmentees et une inference asymptotique simple des parametres du modele ainsi que des tests d hypothese pertinents en equilibre a long terme on decouvre que le support pour le parti progressiste conservateur a ete plus eleve au cours des periodes de hauts taux d interet et bas taux de chomage alors que le support pour le parti liberal a ete plus eleve au cours des periodes de bas taux d interet et de hauts taux de chomage on met au test l hypothese qu on rejette d ailleurs que la notion que le support politique est enclenche seulement par la performance economique du canada par rapport a celle des etats unis en fait les resultats suggerent que les variables macroeconomiques americaines n ont pas du tout d impact sur l equilibre a long terme du vote economique canadien support dans les sondages d opinion politique

umbrella branding and external certification abstract in a market environment with random detection of product quality a firm can employ umbrella branding as a strategy to convince consumers of the high quality of its products alternatively a firm can rely on external certification of the quality of one or both of its products we characterize equilibria in which umbrella branding fully or partially substitutes for external certification we also show that the potential to signal quality is improved if consumers condition their beliefs on the source of information namely whether information comes from external certification or from random detection

executive constraint political stability and economic growth previous studies have argued that democracy diminishes the extent to which leadership contests depress economic growth by reducing the violence and uncertainty attendant on such contests we recon

a statistical model for multiparty electoral data we propose an internally consistent and comprehensive statistical model for analyzing multiparty district level aggregate election data this model can be used to explain or predict how the geographic distribution of electoral results depends upon economic conditions neighborhood ethnic compositions campaign spending and other features of the election campaign or characteristics of the aggregate areas we also provide several new graphical representations for help in data exploration model evaluation and substantive interpretation although the model applies more generally we use it to help resolve an important controversy over the size of and trend in the electoral advantage of incumbency in great britain contrary to previous analyses which are all based on measures now known to be biased we demonstrate that the incumbency advantage is small but politically meaningful we also find that it differs substantially across the parties about half a percent for the conservatives 1 for the labor party and 3 for the liberal party and its successors also contrary to previous research we show that these effects have not grown in recent years finally we are able to estimate from which party each party s incumbency advantage is predominantly drawn

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

firm reputation and horizontal integration author s cai hongbin abstract we study effects of horizontal integration on firm reputation in an environment where customers observe only imperfect signals about firms effort quality choices firms cannot maintain reputations of high quality and earn quality premium forever even when firms are choosing high quality effort there is always a possibility that a bad signal is observed in this case firms must give up their quality premium at least temporarily as punishment a firm s integration decision is based on the extent to which integration attenuates this necessary cost of maintaining a good reputation horizontal integration leads to a larger market base for the merged firm and may allow better monitoring of the firm s choices hence improving the punishment scheme for deviations on the other hand it gives the merged firm more room for sophisticated derivations we characterize the optimal level of integration and provide sufficient conditions under which nonintegration dominates integration we show that the optimal size of the firm is smaller when 1 trades are more frequent and information is disseminated more rapidly or 2 the deviation gain is smaller than the honesty benefit or 3 customer information about firm choices is more precise

benchmarking across borders electoral accountability and the necessity of comparison when the economy in a single country contracts voters often punish the government when many economies contract voters turn against their governments much less frequently this suggests that the international context matters for the domestic vote yet most research on electoral accountability assumes that voters treat their national economies as autarkic we decompose two key economic aggregates growth in real gross domestic product and unemployment into their international and domestic components and demonstrate that voters hold incumbents more electorally accountable for the domestic than for the international component of growth voters in a wide variety of democracies benchmark national economic growth against that abroad punishing rewarding incumbents for national outcomes that underperform outperform an international comparison tests suggest that this effect arises not from highly informed voters making direct comparisons but from pre benchmarking by the media when reporting on the economy the effect of benchmarked growth exceeds that of aggregate national growth by up to a factor of two and outstrips the international component of growth by an even larger margin implying that previous research may have underestimated the strength of the economy on the vote

the macroeconomics of modigliani miller abstract we examine the validity of a macroeconomic version of the modigliani miller theorem by this we mean that different capital structures can occur in equilibrium and that all of them are associated with the same allocation of commodities and the same welfare we develop a general equilibrium model with two production sectors risk averse households and financial intermediation by banks banks are funded by safe deposits and outside equity and monitor borrowers in lending two sets of equilibria emerge these sets differ with regard to the debt equity ratios of banks investment in risky technologies bank defaults and whether first best allocations are attained hence the macroeconomic version of the modigliani miller theorem fails to hold imposing minimum equity capital requirements however eliminates all inefficient equilibria and guarantees the validity of the macroeconomic version of the modigliani miller theorem

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

can high prices ensure product quality when buyers do not know the sellers cost timothy j perri i introduction when consumers are unaware of product quality before they buy producers can nonetheless be punished for providing low quality by losing repeat business klein and leffler 1981 demonstrate that under fairly general conditions a price with a positive profit margin is needed to induce producers to deliver the promised quality level if the profit margin were zero the profit would be greater from low quality than from high even if the customers were disappointed and none of them returned consequently if a firm s price equaled its cost repeat business would be a matter of indifference a higher price however increases long run profit more for firms that provide the promised quality because such firms benefit from the repeat business of satisfied customers at a sufficiently high price the profit from repeat business exceeds the profit from cheating on quality at that price firms will provide the promised quality level 1 two points are of interest in the klein leffler model first absent firm specific capital expenditures positive profit exists in a competitive market second because consumers know the price is an incentive for high quality only if it generates sufficiently high profit they must know the firm s production costs if a given price premium is to ensure high quality we address both points in this article first although it is sometimes thought that non price competition will dissipate profits in the klein leffler model the model does not by itself have that implication positive profit will indeed persist in equilibrium even with free entry unless some new feature is added second while the klein leffier model assumes producers have identical costs though they can choose different quality levels we will add the possibility firms differ in their marginal costs of high quality in ways buyers cannot observe thus we combine moral hazard and adverse selection in a product quality model we hope to accomplish two things to explain how positive profits can persist in the original klein leffler model and to show that adding adverse selection can result in profit dissipation let us explain further before setting out the model first profit dissipation by non price competition lies outside the klein leffler model in that model information is complete buyers know only one type of firm exists but do not know product quality when they purchase a good 2 thus moral hazard is possible firms may deliver quality that is less than what they promised a price p sup above average cost p sub c is necessary to induce firms to deliver the high level of quality they promise to consumers entry cannot eliminate the resulting profit since additional output will drive price below the quality assuring level of p sup this is a surprising result an industry known to earn positive profit without collusion or conventional barriers to entry and yet without expanded output or entry 3 klein and leffler suggest that non price competition will dissipate this profit they realize that non price competition cannot reduce the operating margin by driving average cost per period up closer to price but they suggest that some kind of fixed cost might absorb the profit competition to dissipate the economic profits earned by existing firms must therefore occur in nonprice dimensions the competition involves firm specific capital expenditures klein and leffler 1981 626 such thinking comes naturally to economists we hold the maxim that markets abhor a profit as dearly as physics does nature abhors a vacuum non price competition would occur if each firm could increase profit via such behavior even though the net effect of many firms doing it would dissipate profit such is the case with a cartel where each cartel member can do better if it cheats on the collusive agreement using secret price cuts or non price competition that tends to drive profit to zero

sovereign debt migration pressure and government survival as soon as the sovereign debt crisis began it was widely understood that germany s response would dictate its ultimate resolution whereas the initial round of bailouts stabilized markets and pres

what s in a sign trademark law and economic theory the aim of this paper is to summarize the extant theory as it relates to the economics of trademark and to give some suggestions for further research with reference to distinct streams of literature the proposed line of study inevitably looks at the complex relationship between signs and economics copyright 2006 the authors journal compilation 2006 blackwell publishing ltd

trademark sales entry and the value of reputation we develop an infinite horizon overlapping generations model of reputation in which consumers base willingness to pay for agent services on past performance summarized by a trademark we show that when trademarks can be sold successful firms capture the full value of their reputations upon sale but receive smaller premia for good performance while active as service providers with discounting all agents are worse off with trademark trade taking entry cost into account we show that trademark trade typically reduces entry when entry costs are high welfare is increased by prohibiting such trade

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

limited records and reputation bubbles abstract this paper offers a tractable and fully rational model to study the economics of reputation in a dynamic market with limited record keeping i e a market in which new entrants observe only the last few periods of play of the long run player instead of the full history of the market we show that trust is gradually granted to the opportunistic long run player despite the fact that his type is perfectly observed by the short run opponents and the perfectly informed short run players ride and drive up reputation bubbles at the expense of their uninformed successors we characterize equilibrium payoffs uniformly over time which is useful for analyzing ongoing repeated relationships where the starting moments have passed

tax on name abstract how to tax the name we answer this question by introducing a name market in the sense of tadelis 1999 into an endogenous growth model in which an informational asymmetry exists between capital producing borrowers and lenders we show a name market endogenously arises to screen the borrowers but at the cost of crowding out investment we derive the optimal name price that trades off the screening effect and the crowding out effect and show this optimal price decreases with the investor protection level an optimal tax scheme should tax the name to this optimal price and reimburse the tax revenue to the name buyer when the investor protection level is low the net worth could be lower than the optimal name price so capital income tax shall be allowed to subsidy the name purchase to activate the name market overall we show the optimal tax scheme in the presence of a name market depends crucially on the country s investor protection level

the dynamics of names a model of reputation the article studies reputation of names and its dynamics first the article shows that names backed by nothing intrinsic can bear reputation although the context is purely of adverse selection a mechanism in the spirit of kreps 1990 helps to sustain reputation second it examines how the dynamics of the reputation affects the extent of sorting and the level of social efficiency and derives the dynamics in the equilibria with the highest efficiency finally it empirically predicts that brand names can be fully established sooner in an industry where high end products have larger profit margins

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

development and social capital abstract this paper examines social capital and its relation with economic development we focus on the role that interpersonal relationships play in social exchange whether through the market or through the provision of public goods by facilitating search and trust social capital can increase the efficiency of social exchange where formal institutions are weak but the benefits from social capital are likely to be unequally distributed given these features documenting empirically the benefits of social capital is complicated by the presence of negative and positive externalities and by the existence of leadership and group effects lessons for development policy are drawn at the end

return to tourist destination is it reputation after all in this paper the hypothesis that repeated purchases in the tourism markets could be considered as a consequence of asymmetrical information problems is studied this hypothesis is analysed with the case study of the island of tenerife using the estimation of a count data model it was found that the length of the stay and the information obtained from previous visits and or relatives and friends might increase the return to a destination suggesting the presence of a reputation mechanism as proposed by shapiro 1983 the determinants of the willingness to return were also estimated confirming the main results

attribution error in economic voting evidence from trade shocks this article exploits the international transmission of business cycles to examine the prevalence of attribution error in economic voting in a large panel of countries from 1990 to 2009 we find that voters on average exhibit a strong tendency to oust the incumbent governments during an economic downturn regardless of whether the recession is home grown or merely imported from trading partners however we find important heterogeneity in the extent of attribution error a split sample analysis shows that countries with more experienced voters more educated voters and possibly more informed voters all conditions that have been shown to mitigate other voter agency problems do better in distinguishing imported from domestic growth jel e3 e6

diffusion or confusion clustered shocks and the conditional diffusion of democracy scholars observing clustering in transitions to democracy argue that democratization diffuses across borders as citizens in autocracies demand the same reforms they witness in neighboring states we disagree this article demonstrates that diffusion plays only a highly conditional role in democratization we advance and test an alternative two step theory of clustered democratization 1 economic and international political shocks which are clustered spatially and temporally induce the breakdown of authoritarian regimes then 2 democratic diffusion in turn influences whether a fallen dictatorship will be replaced by a democracy or a new autocracy diffusion despite playing an important role is insufficient to explain the clustering of transitions using data on 125 autocracies from 1875 to 2004 we show that economic crises trigger authoritarian breakdowns while diffusion influences whether the new regime is democratic or authoritarian

what s in a name reputation as a tradeable asset the author develops a model in which a firm s only asset is its name which summarizes its reputation and studies the forces that cause names to be valuable tradable assets an adverse selection model in which shifts of ownership are not observable guarantees an active market for names with either finite or infinite horizons no equilibrium exists in which only good types buy good names the reputational dynamics that emerge from the model are more realistic than those in standard game theoretic reputation models and suggest that adverse selection plays a crucial role in understanding firm reputation

voting and the economic cycle sophisticated voters assess incumbent competence by filtering out economic cycles which they do not like from trend growth which they do naive voters on the other hand respond only to raw economic growth this implies that voting in the aggregate should respond asymmetrically to the economic cycle upswings are rewarded by the naive but punished by the sophisticated downswings are punished by all voters using an established dataset of over 400 general elections we find that the incumbent vote share a responds differently to trend growth than to the cycle b does not respond significantly to positive variation in the economic cycle and c responds significantly and negatively to negative realizations in the economic cycle in contrast to standard formulations of the grievance asymmetry this asymmetric vote response is found to be independent of trend growth

learning about voter rationality we model the accountability relationship between voters and politicians to clarify what can and can t be learned about voter rationality from existing evidence from the behavior literature we make two key points first we show that evidence on the electoral consequences of natural disasters and economic shocks typically interpreted as evidence for voter irrationality is consistent with a canonical model with rational voters second we show that the evidence on the electoral consequences of disaster response typically interpreted as evidence for voter rationality is consistent with the same model with irrational voters hence neither body of evidence can adjudicate between rational and irrational voting behavior we also derive new hypotheses that can better guide future empirical work attempting to assess voter rationality

breaking free of a stereotype should a domestic brand pretend to be a foreign one consumers in many emerging markets exhibit a pronounced preference for western and global brands while domestic brands are often associated with a cheap but low quality image frustrated with the negative country of origin coo stereotype imposed on them many domestic brands from emerging markets follow a variety of approaches to disguise their coo and pretend to be foreign this paper studies the strategic aspects of this phenomenon we consider an experience good market where consumers learn about each brand s quality using its coo as a prior each firm can invest in product quality or coo dissociation the former generates better quality signals while the latter simply masks the firm s coo identity the analysis reveals a few main insights sharing a reputation leads to a common good problem where firms free ride on each other s quality investments as a high quality firm dissociates itself from the stereotype it ceases to contribute to the coo image but also prevents its low quality peers from free riding on it this incurs a negative direct effect but a positive strategic effect on the group image consequently a country s coo image may actually improve when more high quality brands shun their identities and pretend to be foreign in equilibrium coo image improves monotonically as firms become more efficient in providing quality however the prevalence of coo dissociation may first increase then decrease we discuss the implications of these results for emerging market brands as well as policy makers

the economics of nested names name specificity reputations and price premia a good can be identified by its region or country of origin the firm that produces it and its product name in other words names can nest within each other to categorize goods with increasing specificity this article develops a conceptual framework for jointly analyzing the effect of product firm and collective reputations on market price the model is estimated via quantile regression with california wine market data the results portray how the structure and relative importance of reputations change as product prices vary specifically reputation premia migrate from collective to specific names as prices increase

reputation and survival learning in a dynamic signalling model we consider the impact of reputation on the survival of a monopolist selling single units in discrete time periods whose quality is learned slowly if the seller learns her own quality at the same rate as customers a sufficiently bad run of luck could induce her to stop selling when she knows her quality a good seller never stops selling though at low reputations a bad seller does with some probability furthermore a seller with positive though imperfect information sells for the same number of periods whether her information is private or public we further consider the robustness of the central result when the seller s opportunities for strategic behaviour are limited

price and quality cycles for experience goods we explore a dynamic competitive model for experience goods and study an equilibrium for it in which firms plan initially to produce high quality at low price then high quality at high price then low quality at high price each consumer is aware that all firms eventually intend to run down their reputations at customers expense yet he rationally chooses to wait for direct evidence that the firm to which he is attached has already entered into the exploitative phase

are bureaucrats paid like ceos performance compensation and turnover of top civil servants abstract recent research explores the effect of financial and career incentives on public sector hiring processes and subsequent performance the reverse relation between performance and bureaucrats compensation and turnover has received only limited attention due to the distinct features of public sector organizations bureaucrats are traditionally argued to require either permanent positions and fixed wages or low powered performance incentives this article studies how the performance of top civil servants in norwegian local governments affects their compensation and turnover we thereby build on a unique new dataset over the period 1991 2014 our results indicate that better performing top civil servants obtain a higher compensation and are less likely to be replaced nonetheless these incentives remain low powered in line with agency theory prescriptions

traders vs relationship managers reputational conflicts in full service investment banks we present a model that explains why investment bankers struggle to manage conflicts of interest banks can build a type reputation for technical competence by performing complex deals that may not serve their clients interest on the other hand banks can sustain a behavioral reputation by refraining from doing so a behavioral reputation is a luxury reserved for banks that have proven their abilities the model sheds light on conflicts between the trading and advisory divisions of investment banks as well as the consequences of technological change for time variation in the relative strength of behavioral and type reputation concerns

incentives through consumer learning about tastes we consider a long lived firm that faces an infinite sequence of finitely lived consumers in each period the firm can exert either high or low effort which is the firm s private information when consumers learn about the firm s talent from the outcomes of previous transactions there exists no equilibrium in which the firm always exerts high effort however when consumers learn about their own tastes such an equilibrium can exist consumer learning about tastes therefore is an alternative to reputational concerns that produces stable incentives we discuss the implications of this mechanism for advertising advertising content and consumer education

do changes in terms of trade impact election outcomes abstract we investigate whether luck is a relevant factor in election outcomes by analyzing how a country s change in terms of trade close to the election impacts the probability of reelection of the incumbent party we draw from economic and political data on countries around the world and find that changes in the terms of trade one year before the election affect the reelection probability import prices are the main drivers of the result and elections in non oecd countries are the most affected by terms of trade

heterogeneity in perceptions of national economic conditions empirical findings concerning economic voting differ according to the level of analysis employed a widely accepted explanation for the inconsistency between macroand microlevel evidence of economic voting is the high degree of random variation that plagues survey data according to this explanation aggregation purges individual level noise from mass opinions on policy issues and outcomes building on the research of bartels 1996 we debate the validity of this explanation by demonstrating that public evaluations of the national economy vary systematically with information media exposure political attitudes personal experiences and demographic characteristics furthermore we show that these sources of subjective heterogeneity produce systematic biases when national economic evaluations are aggregated these findings challenge a widely accepted notion that because error in individual level measures or expressions of preferences is random the aggregation of these individual measures ensures that they correctly represent the collective preference mpirical findings concerning the influence of the economy on political behavior differ depending on the level of analysis employed using aggregate level data numerous studies have established a statistical relationship between economic conditions and election outcomes or executive popularity e g kramer 1971 mackuen erikson and stimson 1992 on the basis of the macro level evidence alone one would have little reason to doubt that the economy matters in contrast individual level studies using survey data have produced only mixed evidence that voters consider economic conditions when evaluating the incumbent government and its leaders e g fiorina 1978 1981 kinder and kiewiet 1979 1981 moreover the strongest survey evidence of economic voting suggests that voters primarily care about national economic conditions not their personal financial situation this finding contradicts the egocentric theory posited by early macro level research that national economic indicators matter because they are correlated with personal financial circumstances the micro macro dichotomy in economic voting research reflects a similar dichotomy in research on voter sophistication and representation aggregate level studies tend to indicate that voters are reasonably well informed about the economy and make forward looking rather sophisticated voting decisions e g alesina londregan and rosenthal 1993 suzuki and chappell 1996 palmer and whitten 1999 these studies infer that mass political decisions conform to rational expectations or at least limited information rationality e g mackuen erikson and stimson 1992 in contrast to this macro level image of the voter individual level survey research has shown that the public in general has low levels of political sophistication lacking much knowledge of and interest in politics e g

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

asymmetric information and overinvestment in quality in a standard adverse selection world asymmetric information about product quality leads to quality deterioration in the market suppose that a higher investment level makes the realization of high quality more likely then if consumers observe the investment but not the realization of product quality before purchase they can infer the probability distribution of high and low quality that may be put on the market we uncover two effects that may lead the firm to overinvest in quality compared to a market with full information first an adverse selection effect according to which a sufficiently large investment can avoid adverse selection and second an efficiency effect according to which a larger investment reduces the probability of having in the market low quality products that are not socially valuable

information acquisition and reputation dynamics we study dynamic incentives and behaviour in markets with costly discovery of past transactions in our model a sequence of short lived customers interact over time with a single long lived firm that privately knows its type good or opportunistic customers must pay to observe the firm s past behaviour we characterize the equilibrium structure that features accumulation consumption and restoration of reputation the opportunistic firm deliberately builds its reputation up to a point where the maximum periods of information acquired by customers do not reveal past opportunistic behaviour and exploits the customers who most trust the firm copyright 2011 oxford university press

you are known by the directors you keep reputable directors as a signaling mechanism for young firms in this paper we develop an analytical model of outside directors signaling role a role that is especially important for entrepreneurial firms we formally demonstrate that in the face of a market failure in which stakeholders refuse to align themselves with new firms high quality new ventures may be able to credibly signal their type by appointing reputable directors to their boards however this option is not universally feasible both directors reputations and the quality of their information determine the effectiveness of this strategy in contrast to earlier adverse selection models we demonstrate that when the middlemen directors have incomplete information on firm quality bad and good firms can coexist in equilibrium in this equilibrium the quality of the directors information determines the mix of good and bad firms in the population of surviving firms avenues for future research and normative implications for practitioners are discussed

recursive contracts firm longevity and rat races an experimental analysis abstract this paper reports the results from a laboratory experiment which investigates the structure of contracts that emerge in overlapping generation firms where future ownership is a perquisite of employment workers in the young generation are offered employment contracts designed by the firms owners who belong to the old generation when old employed workers are granted ownership rights as long as the firm continues to operate in line with theoretical predictions the results indicate that as firm longevity increases the recursive nature of the contracts leads to a rat race characterized by low wages high effort levels and rent dissipation these results have important implications for the optimal management of long lived firms such as partnerships

public trust and government betrayal abstract this study presents a simple model of government reputation in which government type cannot be directly observed by households with the variation that government type rather than being permanent follows an exogenous markov process this formulation captures three characteristics of bad policy outcomes governments which betray public trust do so erratically public trust is regained only gradually after a betrayal and governments with recent betrayals betray with higher probability than other governments

does it pay to change your company s name a stock market perspective a company s name is commonly considered to be an integral part of its image just like the quality of its products or the quality of its technical services changing a company s name is a major policy decision contemplated by many firms and actually implemented by some each year this paper attempts to examine albeit indirectly whether a name change can improve the profit performance of a firm and what type of firm is more likely to succeed in doing so we use the event study methodology developed in finance to examine the above questions with respect to 58 corporations that changed their names in 1981 1985 our findings are that for most of the firms name changes are associated with improved performance and that the greatest improvement tends to occur in firms that produce industrial goods and whose performance prior to the change was relatively poor evidence that industrial good producers are also heavy users of corporate advertising lends further credence to this finding our findings do not support however the contention that the new name per se will enhance demand for the firm s products rather it seems that the act of a name change serves as a signal that other measures to improve performance such as changes in product offerings and organizational changes will be seriously and successfully undertaken the rationale behind why such a signal is sent and why it is believed is discussed

reputation in an internet auction market i introduction without transmission of credible information asymmetries may lead to underproduction of goods or even market failure reputation mitigates inefficiencies associated with information asymmetries by providing an informative signal of quality 1 the difficulty in quantifying reputation means that few studies can analyze empirically the role of reputation in markets our analysis of a quantified market observed measure of reputation provides direct evidence of the effect of a seller s reputation on the terms of a onetime real world transaction thereby contributing empirical support to a fundamental economic principle this study empirically examines person to person transactions within the internet market known as ebay in this virtual market of unseen participants and products buyers and sellers face the risks of repudiation as the counter party may deny the agreement after the fact buyers assume risks associated with lack of seller integrity and asymmetric information about the particular product as the buyer is typically required to send payment before the seller ships the product in addition for many ebay transactions the cost of enforcing a contract is high relative to the transaction s value resulting in a practical absence of legal enforcement 2 by providing a history of trade execution information ebay benefits market participants by reducing information asymmetries while achieving substantial transaction cost economies market participants relate personal experiences which ebay uses to calculate a numerical reputation measure for each user market participants in turn can use this reputation measure to assess counter party risk and adjust bidding behavior accordingly in a sample of 460 auctions held between january 1998 and july 1998 we find a positive relation between prices and ebay s reputation measure higher reputation sellers experience higher auction prices ceteris paribus our findings suggest that repeat players are rewarded for building reputation consistent with the belief that the high reputation seller s value of future transactions outweighs the value of taking advantage of the buyer in the current transaction buyers are willing to pay more to a higher reputation seller this article contributes to the literature not only by providing quantitative support of long accepted reputation theories but also by illustrating the use of nontraditional markets as a natural laboratory for experiments this article is an example of how a newly formed electronic market can provide the elements necessary for analytical research we find that ebay transactions for this item exhibit characteristics similar to transactions in more conventional markets namely 1 prices are higher when there is less quantity supplied when fewer of the items are available the same day 2 prices are lower during periods of lower demand times less likely to have high traffic 3 sellers with higher shipping and handling costs receive lower prices and 4 sellers failing to provide information about shipping and handling fees i e larger information asymmetries receive fewer bids dramatic innovations in online market structure and increasing availability of online market data should enable researchers to examine directly other traditionally non quantifiable economic ideas this article is organized as follows section ii describes how reputation can be used to facilitate transactions in the presence of asymmetric information section iii describes the ebay market summarizes the listing and bidding processes and discusses the reputation mechanism for this market section iv presents the price and reputation descriptive statistics associated with a consistently auctioned item and reports the empirical findings of how this item s highest bid price varies with the level of the seller s reputation we conclude in section v with a discussion of ebay s continued attempts to add value to the market through recent structural changes

don t stand so close to me spatial contagion effects and party competition in this article we bring together elements from the literatures on economic voting and spatial voting to gain theoretical leverage on the combined role of clarity of responsibility party policy positions and economic performance in elections building on evidence of voter knowledge we develop a theory of spatial contagion effects to explain how factors drawn from both of these literatures combine to shape changes in support for political parties we test this theory with a spatial autoregressive model of party competition in 23 nations from 1951 to 2005 as expected we find evidence of strong spatial contagion effects in elections with low clarity of responsibility

new like new or very good reputation and credibility we show that sellers may earn reputation for their ability to deliver high quality goods on average by honestly announcing the realised quality of items for sale every period as the expected revenue stream from continuing with honest communication increases with their ability high ability sellers remain honest while low ability sellers find it too costly and sometimes lie about quality for short term gain thus cheap talk communication facilitates the market s learning of a seller s ability and strengthens reputation effects we study this new reputation mechanism and the induced market dynamics first when sellers cannot restart with a new identity and then when they can we extend the analysis to various other situations such as voluntary refund and moral hazard

entrants reputation and industry dynamics this article analyzes entry exit decisions in a market where reputation determines the price that firms may charge within a rational expectation model of competition in a nonatomic market under heterogeneous reputations the analysis focuses on the class of name switching reputational equilibria in which a firm discards its name if and only if its reputation falls below the entrants reputation the main technical result is the existence of a unique steady state equilibrium within this class in which the entrants reputation is endogenous the resulting industry dynamics is largely on agreement with the findings in the empirical literature

sources of bias in retrospective decision making experimental evidence on voters limitations in controlling incumbents are citizens competent to assess the performance of incumbent politicians observational studies cast doubt on voter competence by documenting several biases in retrospective assessments of performance however these studies are open to alternative interpretations because of the complexity of the real world in this article we show that these biases in retrospective evaluations occur even in the simplified setting of experimental games in three experiments our participants 1 overweighted recent relative to overall incumbent performance when made aware of an election closer rather than more distant from that event 2 allowed an unrelated lottery that affected their welfare to influence their choices and 3 were influenced by rhetoric to give more weight to recent rather than overall incumbent performance these biases were apparent even though we informed and incentivized respondents to weight all performance equally our findings point to key limitations in voters ability to use a retrospective decision rule

voting in open economies the electoral consequences of globalization what are the electoral consequences of global market integration although recent discussions of politics and markets have much to say on globalization s implications for policy outcomes the impact of market integration on representative democracy has received scant attention this article addresses this omission we extend the globalization literature to develop two competing hypotheses regarding the influence of open economies on electoral accountability predictions are tested using a new data set covering elections from 75 countries over 27 years results support a government constraint hypothesis exposure to the world economy weakens connections between economic performance and support for political incumbents by redirecting concerns from the policy implications of globalization and toward its electoral consequences findings highlight the influence of voter perceptions and of vote seeking politicians in the politics of globalization

employment insecurity incumbent partisanship and voting behavior in comparative perspective we argue that occupational unemployment rates by informing perceptions of economic insecurity serve as a salient and powerful heuristic for aggregate economic performance consequently high and

how do consumers motivate experts reputational incentives in an auto repair market abstract moral hazard exists in expert service markets because sellers have an incentive to shade their reports of the buyer s condition to increase the short run demand for their services the california vehicle emission inspection market offers a rare opportunity to examine how reputational incentives work in such a market i show that consumers are 30 percent more likely to return to a firm at which they previously passed than to one at which they previously failed and that demand is sensitive to a firm s failure rate across all consumers these and other results suggest that demand incentives are strong in this market because consumers believe that firms differ greatly in their consumer friendliness and are skeptical even about those they choose weak demand incentives in other expert service markets are not a direct consequence of moral hazard but rather of its interaction with switching costs and consumers belief that firms are relatively homogeneous