a simple estimator for simultaneous models with censored endogenous reggressors this paper presents a simple two step estimator for models with censored endogenous regressors and sample selection bias the approach unifies the literature on censored endogenous regressors and sample selection bias and provides extensions the procedure employs generalized residuals to adjust for the inconsistency caused by the endogeneity of the censored regressors the paper also provides two new tests of weak exogeneity an empirical example examining the trade off between fringe benefits and wages indicates that the estimation procedure works well a monte carlo experiment suggests that the proposed tests have good power properties copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the causes of preference reversal observed preference reversal cannot be adequately explained by violations of independence the reduction axiom or transitivity the primary cause of preference reversal is the failure of procedure invariance especially the overpricing of low probability high payoff bets this result violates regret theory and generalized nonindependent utility models preference reversal and a new reversal involving time preferences are explained by scale compatibility which implies that payoffs are weighted more heavily in pricing than in choice copyright 1990 by american economic association

supply side and demand side cost sharing in deregulated social health insurance which is more effective abstract microeconomic theory predicts that if patients are fully insured and providers are paid fee for service utilization of medical services exceeds the efficient level moral hazard effect in switzerland both demand side and supply side cost sharing have been introduced to mitigate this problem analyzing a panel dataset of about 160 000 adults we find both types of cost sharing to be effective in curtailing the use of medical services however when moral hazard mitigation is traded off against risk selection the minimum deductible supply side cost sharing option ranks first followed by the medium deductible demand side alternative making the supply side option somewhat more effective

nash solution and timing of bargaining abstract we analyze bargaining problems with unknown feasible sets and known disagreement points two characterizations of the nash solution are presented by formulating axioms specifying how bargaining solutions should respond under such circumstances

on risk aversion and bargaining outcomes abstract we revisit the well known result that asserts that an increase in the degree of one s risk aversion improves the position of one s opponents to this end we apply yaari s dual theory of choice under risk both to nash s bargaining problem and to rubinstein s game of alternating offers under this theory unlike under expected utility risk aversion influences the bargaining outcome only when this outcome is random namely when the players are risk lovers in this case an increase in one s degree of risk aversion increases one s share of the pie

international externalities strategic interaction and domestic politics abstract domestic politics can sometimes play an influential role when externalities have strategic and international implications if voters delegate the choice to policymakers and if individual countries independently determine their environmental policy using a consumption tax on the emissions generating good the result could be an outcome that is inferior to the one preferred by the median voter in the absence of delegation on the other hand if the international externality is unilateral in nature rather than reciprocal we find that delegation is largely irrelevant since voters choice of policymaker is no longer strategic in character similarly if voters anticipate policymakers successfully coordinating their policies at a later stage there also will be no difference between the policymakers and the median voters aggregate weighting of environmental emissions

minimal cooperation in bargaining abstract mid point domination requires that the solution outcome dominate or be dominated by a reference point by investigating two different formulations of the condition we present characterizations of the nash and the kalai rosenthal solutions for n person bargaining problems

moral hazard and the demand for physician services first lessons from a french natural experiment abstract this paper presents empirical results on moral hazard in demand for medical care using a longitudinal dataset on 4578 individuals followed during two years the dataset contains two subgroups one for which a copayment rate of 10 for physician visits was introduced in 1994 and an other for which no change occurred during the period of the study this enables us to use these data as coming from a controlled natural experiment we test if the number of visits per agent was modified by this copayment rate the data reject the hypothesis for office visits but do not for home visits this suggests that there is moral hazard in demand for some physician services but also that when non monetary costs are important small changes in monetary price may not induce any major change in behavior

two stage residual inclusion estimation addressing endogeneity in health econometric modeling the paper focuses on two estimation methods that have been widely used to address endogeneity in empirical research in health economics and health services research two stage predictor substitution 2sps and two stage residual inclusion 2sri 2sps is the rote extension to nonlinear models of the popular linear two stage least squares estimator the 2sri estimator is similar except that in the second stage regression the endogenous variables are not replaced by first stage predictors instead first stage residuals are included as additional regressors in a generic parametric framework we show that 2sri is consistent and 2sps is not results from a simulation study and an illustrative example also recommend against 2sps and favor 2sri our findings are important given that there are many prominent examples of the application of inconsistent 2sps in the recent literature this study can be used as a guide by future researchers in health economics who are confronted with endogeneity in their empirical work

buyers pricing behavior for risky alternatives encoding processes and preference reversals numerous studies have examined individuals minimum selling prices or certainty equivalents for lotteries as measures of preference but few have examined maximum buying prices because every transaction involves a buyer as well as a seller buyers pricing behavior is of interest in its own right two prospect theory based descriptive models of maximum buying prices the integration and segregation models are developed from different assumptions about cognitive encoding processes the models were tested experimentally using an incentive compatible cash payoff scheme in which maximum buying prices for bets and choices between bets were elicited from subjects surprisingly observed maximum buying prices were far below expected values even for bets with probabilities of winning near 1 0 this suggests buyers are strongly influenced by loss aversion and that the conventional assumption that the buying price for a risky alternative is a reduction in the alternative s payoffs fails to describe behavior instead it appears subjects predominately employed a segregation encoding process in which the buying price was encoded separately from the bet s payoffs and treated as a sure loss however an additional result was not explained adequately by either encoding model buying prices were less risk averse than choices for 3 expected value bets creating preference reversals of the standard kind lichtenstein and slovic 1971 but more risk averse for 100 expected value bets creating reverse preference reversals casey 1991 implications for the scale compatibility principle tversky et al 1988 are discussed two theoretical approaches are outlined which offer promise in the development of a unified model of price judgments and choice preferences under risk

bayesian analysis of the two part model with endogeneity application to health care expenditure this paper studies the effect of managed care on medical expenditure using a model in which the insurance status is assumed to be endogenous insurance plan choice is modeled through the multinomial probit model the medical expenditure variable the outcome of interest has a significant proportion of zeros that are handled using the two part model extended to handle endogenous insurance the estimation approach is bayesian based on the gibbs sampler the model is applied to a sample of 20 460 individuals obtained from the medical expenditure panel survey the results provide substantial evidence of selectivity copyright 2006 john wiley sons ltd

misrepresentation of utilities in bargaining pure exchange and public good economies in order to analyze bargaining in pure exchange and public good economics when the agents are not informed about their opponents payoffs we embed each bargaining problem into a noncooperative game of misrepresentation in pure exchange public good economies with an arbitrary number of agents whose true utilities satisfy a mild assumption the set of allocations obtained at the linear strategies nash equilibria of this game is equal to the set of constrained walrasian lindahl allocations with respect to the agents true utilities without this assumption the result holds for two agent pure exchange economies and under alternative assumptions for public good economies c 2002 elsevier science usa

are incentives against economic justice abstract we consider the problem of fairly allocating a social endowment of indivisible goods and money when the domain of admissible preferences contains but is not restricted to quasi linear preferences we analyze the manipulability of the generalized money rawlsian fair gmrf solutions i we show that the nash and strong nash equilibrium correspondences of the preference revelation game form associated with each gmrf solution coincide with the no envy solution in equilibrium efficiency is preserved according to agents true preferences ii a corollary is that the gmrf solutions naturally implement the no envy solution in nash and strong nash equilibria

on weighted kalai samet solutions for non transferable utility coalitional form games abstract we investigate the implications of the axiom of coalitional concavity for non transferable utility coalitional form games this axiom says that if the feasible set of some coalition is uncertain whereas the feasible sets of other coalitions are known then all players in the coalition with the uncertain feasible set should weakly benefit from reaching a compromise before the uncertainty is resolved by imposing this axiom in addition to other minor axioms we characterize the weighted kalai samet econometrica 53 1985 307 solutions these solutions coincide with the weighted egalitarian solutions on the domain of bargaining problems and with the weighted shapley values on the domain of transferable utility coalitional form games

a microeconometric model of the demand for health care and health insurance in australia this paper develops a model for interdependent demand for health insurance and health care under uncertainty to throw light on the issue of insurance induced distortions in the demand for health care services the model is used to empirically analyse the determinants of the choice of health insurance type and seven types of health care services using micro level data from the 1977 78 australian health survey econometric implementation of the model involves simultaneously issues of discreteness of choice selectivity and stochastic dependence between health insurance and utilization health status appears to be more important in determining health care service use than health insurance choice while income appears to be more important in determining health insurance choice than in determining health care service use for a broad range of health care services both moral hazard and self selection are found to be important determinants of utilization of health care services

simultaneity of issues and additivity in bargaining on etudie la negociation simultanee sur plusieurs resultats par deux negociateurs en prenant les sommes des jeux de negociation et en exigeant des solutions de negociation satisfaisant certains axiomes de super additivite

ssb and weighted linear utility as expected utility with suspicion we show that a suspicious subjective expected utility seu maximizer i e one who treats potential consequences of states as information useful in assessing the probability of those states may under reasonable circumstances act as though he were maximizing either weighted linear utility or skew symmetric bilinear ssb utility seu with suspicion therefore explains at least as many empirical violations of seu theory as do these and similar models we give examples to illustrate how several important types of seu violations may seem to arise when suspicion is present

utilitarianism egalitarianism and the timing effect in social choice problems two theorems are derived about social choice functions which are defined on comprehensive convex subsets of utility allocation space theorem 1 asserts that a linearity condition together with pareto optimality implies that a social choice function must be utilitarian theorem 2 asserts that a concavity condition together with pareto optimality and independence of irrelevant alternatives implies that a social choice function must be either utilitarian or egalitarian these linearity and concavity conditions have natural interpretations in terms of the timing of social welfare analysis before or after the resolution of uncertainties and its impact on social choices

prospect theory mental accounting and differences in aggregated and segregated evaluation of lottery portfolios if individuals have to evaluate a sequence of lotteries their judgment is influenced by the presentation mode experimental studies have found significantly higher acceptance rates for a sequence of lotteries if the overall distribution was displayed instead of the set of lotteries itself mental accounting and loss aversion provide an easy and intuitive explanation for this phenomenon in this paper we offer an explanation that incorporates further evaluation concepts of prospect theory our formal analysis of the difference in aggregated and segregated portfolio evaluation demonstrates that the higher attractiveness of the aggregated presentation mode is not a general phenomenon as suggested in the literature but depends on specific parameters of the lotteries the theoretical findings are supported by an experimental study in contrast to the existing evidence and in line with our theoretical results we find for specific types of lotteries an even lower acceptance rate if the overall distribution is displayed

delegation and threat in bargaining abstract two principals nations appoint one agent each to bargain over the provision of a public good two institutional set ups are studied each with a different level of authority given to the agents here authority means the right to decide the own side s provision if negotiations break down in equilibrium the principals choose agents with preferences differing from their own the low authority equilibrium pareto dominates with regard to the principals the case of the principals deciding on the provisions simultaneously autarchy the high authority equilibrium is pareto dominated by the low authority equilibrium and it may even be dominated by autarchy journal of economic literatureclassification numbers c71 and c72

self optimality and efficiency in utility distortion games in social choice problems where players may strategically misrepresent their preferences we call a profile of preferences self optimal if reporting them is a nash equilibrium given that they are the true preferences self optimality can be interpreted as a very weak honesty requirement we apply the self optimality concept to a utility distortion game in the context of bargaining and obtain a characterization of efficient nash equilibria

final offer arbitration and risk aversion in bargaining negotiations are often conducted under the stipulation that an impasse is to be resolved using final offer arbitration foa in fact foa frequently is not needed in major league baseball for instance more than 80 of the salary negotiations that could go to arbitration instead reach a bargained agreement we show that the risk aversion of at least one side explains this phenomenon we then model pay negotiation in baseball by applying a bargaining solution with a variable disagreement outcome representing foa studying the existence of pure nash equilibrium initial offers and their effects on the player s eventual pay and considering the nash solution as a special case

maximal manipulation of envy free solutions in economies with indivisible goods and money abstract we consider the problem of the fair allocation of indivisible goods and money with non quasi linear preferences the purpose of the present study is to examine strategic manipulation under envy free solutions we show that under a certain domain richness condition each individual obtains the welfare level of his optimal envy free allocation by maximally manipulating the solutions this maximal manipulation theorem is helpful in analyzing the set of nash equilibrium allocations in the direct revelation games associated with a given envy free solution if an envy free solution satisfies a mild condition the set of nash equilibrium allocations in its associated direct revelation game coincides with that of envy free allocations

the economics of moral hazard revisited pauly s 1968 pauly m 1968 the economics of moral hazard comment american economic review 58 531 537 analysis of the welfare loss from insurance assumes that medical care consumption is not determined by income but recent studies suggest it is this study argues that 1 pauly s analysis overstates the welfare loss because it includes the effect of income on consumption 2 the relevant income effect is derived from income transfer from the healthy to the ill that occur when the probability of illness is less than 1 and 3 the welfare loss can be considered the transaction cost of insurance

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

manipulation of preferences and relative utilitarianism abstract given n agents with who wish to divide m commodities consider the n person noncooperative game with strategies consisting of concave increasing utility functions and whose outcomes are the relative utilitarian solution any constrained equal income competitive equilibrium allocation for the true utilities is shown to ba a nash equilibrium outcome for the noncooperative game conditions are presented under which these are the only pure strategy equilibrium outcomes journal of economic literature classification numbers c72 c78 d71

adverse selection moral hazard and wealth effects in the medigap insurance market using data from a longitudinal study of the recently retired we attempt to separate the moral hazard effect of medicare supplementary medigap insurance on health care expenditures from the adverse selection effect of poor health on medigap coverage we find evidence of adverse selection but its magnitude is unlikely to create serious efficiency problems taking adverse selection into account reduces the estimate of the moral hazard effect in addition we find a strong positive wealth effect on the demand for supplementary insurance

nash solution and uncertain disagreement points abstract we analyze bargaining problems with known feasible sets but uncertain disagreement points we investigate the existence of solutions such that under reasonably restricted circumstances all agents be as well off by reaching an agreement today as they would be by waiting until the uncertainty is resolved we use this requirement together with a few other commonly used conditions to characterize the nash solution

whose wages do unions raise a dynamic model of unionism and wage rate determination for young men we estimate the union premium for young men over a period of declining unionization 1980 87 through a procedure which identifies the alternative sources of the endogeneity of union status while we estimate the average increase in wages resulting from union employment to be in excess of 20 we find that the return to unobserved heterogeneity operating through union status is substantial and that the union premium is highly variable we also find that the premium is sensitive to the form of sorting allowed in estimation moreover the data are consistent with comparative advantage sorting our results suggest that the unobserved heterogeneity which positively contributes to the likelihood of union membership is associated with higher wages we are unable however to determine whether this is due to the ability of these workers to extract monopoly rents or whether it reflects the more demanding hiring standards of employers faced by union wages 1998 john wiley sons ltd

let them cheat abstract we consider the problem of fairly allocating a bundle of infinitely divisible goods among a group of agents with classical preferences we propose to measure an agent s sacrifice at an allocation by the size of the set of feasible bundles that the agent prefers to her consumption as a solution we select the allocations at which sacrifices are equal across agents and this common sacrifice is minimal we then turn to the manipulability of this solution in the tradition of hurwicz 1972 we identify under some mild assumptions on preferences the equilibrium allocations of the manipulation game associated with this solution when all commodities are normal for each preference profile each equal division constrained walrasian allocation is an equilibrium allocation conversely each equilibrium allocation is equal division constrained walrasian furthermore we show that if normality of goods is dropped then equilibrium allocations may not be equal division constrained walrasian

predicting buyer seller pricing disparities numerous studies have shown that compensation demanded cd to give up a commodity often greatly exceeds willingness to pay wtp to obtain the same commodity even in incentive compatible experiments that penalize strategic misrepresentation observed cd wtp disparities are too large to be reconciled with traditional assumptions of economic rationality a prospect theory based behavioral framework for predicting cd and wtp is proposed which produces five distinct transaction encoding rules any one of which can in principle apply to a buyer or a seller according to this framework cd wtp gaps occur when buyers and sellers encode the prospective transaction differently and gaps can occur in multiple ways and vary in size depending on encoding the transaction encoding framework was tested in two experiments in experiment 1 model fits to subjects cd and wtp for lottery tickets were consistent with the hypothesis that buyers and sellers encode transaction problems differently moreover the quite large observed cd wtp gaps were explained fully by encoding when differences between buyers and sellers encoding processes were taken into account their estimated utility value and probability weighting functions did not differ the present framework and results show that the widely cited endowment effect is but one of several ways in which loss aversion can give rise to cd wtp gaps consistent with this broadened perspective experiment 2 demonstrated cd wtp gaps in the absence of an endowment effect and in the absence of rational economic causes the transaction encoding framework 1 provides a structured approach for predicting and testing the effects of a variety of task factors on pricing behavior and transaction outcomes and 2 reveals the useful property that in many cases the ratio cd wtp can be interpreted as a direct measure of the degree of loss aversion

prospect theory and mean variance analysis the experimental results of prospect theory pt reveal suggest that investors make decisions based on change of wealth rather than total wealth that preferences are s shaped with a risk seeking segment and that probabilities are subjectively distorted this article shows that while pt s findings are in sharp contradiction to the foundations of mean variance mv analysis counterintuitively when diversification between assets is allowed the mv and pt efficient sets almost coincide thus one can employ the mv optimization algorithm to construct ptefficient portfolios the markowitz 1952a tobin 1958 mean variance mv rule is probably the most popular investment decision rule under uncertainty in economics and in finance and it is widely employed by both academics and practitioners the strength of the mv analysis is that in the case of normal return distributions the choice of any expected utility maximizing risk averse individual will be according to the mv rule 1 the mv framework is the foundation of the sharpe 1964 lintner 1965 capital asset pricing model capm which is a cornerstone of modern finance moreover the mv framework provides a very important practical procedure for the construction of efficient portfolios while standard economic theory and in particular mv analysis assume expected utility maximization and risk aversion in a breakthrough article kahneman and tversky 1979 show that the actual behavior of individuals systematically and consistently violates these

prudence in bargaining the effect of uncertainty on bargaining outcomes abstract we investigate the outcome of bargaining when a player s pay off from agreement is risky we find that a risk averse player typically increases his equilibrium receipts when his pay off is made risky this is because the presence of risk makes individuals behave more patiently in bargaining strong analogies are drawn to the precautionary saving literature we show that the effect of risk on receipts can be sufficiently strong that a decreasingly risk averse player may be better off receiving a risky pay off than a certain pay off

robustness of intermediate agreements and bargaining solutions abstract most real life bargaining is resolved gradually during this process parties reach intermediate agreements these intermediate agreements serve as disagreement points in subsequent rounds we identify robustness criteria which are satisfied by three prominent bargaining solutions the nash proportional and as a special case to the egalitarian solution and discrete raiffa solutions we show that the robustness of intermediate agreements plus additional well known and plausible axioms provide novel axiomatizations of the above mentioned solutions hence we provide a unified framework for comparing these solutions bargaining theories

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

the effect of decision weights in bargaining problems abstract bargaining problems are considered where the preferences of the bargainers deviate from expected utility but can be modelled according to rank dependent utility theory under rank dependent utility both the utility function and the probability weighting function influence the risk attitude of a decision maker the same definition of risk aversion leads to two forms of risk aversion utility risk aversion and probabilistic risk aversion the main finding is that these two forms can have surprisingly opposite consequences for bargaining solutions that exhibit a weak monotonicity property in particular in a large class of bargaining problems both increased utility risk aversion and decreased probabilistic risk aversion of the opponent are advantagous for a player this is demonstrated for the kalai smorodinsky bargaining solution the nash bargaining solution does not behave regularly in this respect

bargaining with uncertain disagreement points much of the uncertainty concerning the likely outcome of a typical management labor conflict pertains to the cost of possible conflict to the two sides in this paper we consider situations of this kind where the cost of conflict is not known with certainty however we will assume the benefits from cooperation to be known we place our analysis in the abstract framework formulated by nash 1950 nash described a bargaining problem as a pair consisting of a feasible set the amount to be divided among management and labor and a disagreement point giving the payoffs to both sides when they fail to reach agreement on a division that is the strike nash investigated the existence of solutions to such problems that would satisfy a certain list of appealing properties in his analysis both feasible set and disagreement point were assumed to be known here we assume only the feasible set to be known several studies have appeared of bargaining situations where the feasible set is unknown but the disagreement point is known while we are of course not denying the relevance of such studies we believe that an analysis of situations where it is the consequences of conflict that are unknown might be equally and perhaps even more relevant to industrial experience indeed consider a management labor conflict over wages and benefits in many industries the future profitability of the enterprise can be predicted with reasonable accuracy on the basis of its performance in the previous years whereas the impact of a strike might depend on a number of factors that are significantly harder to evaluate this is because strikes are infrequent and conjectures about these factors are often not put to the test a strike is a threat that is often not carried out and because they involve a number of parameters that are difficult to quantify such as the psychological readiness of the strikers the support they might receive from the population and the media and the likely response of competing and related industries we impose on solutions a new condition of disagreement point concavity guaranteeing that agents will agree on a compromise before the uncertainty concerning the disagreement point is resolved to illustrate this requirement somewhat more concretely suppose that bargaining takes place today without the precise location of the disagreement point being known this uncertainty being resolved tomorrow the bargainers have two options the first option is simply to wait until tomorrow and solve then whatever problem has come up unfortunately the resulting pair of contingent compromises evaluated today is in general strictly pareto dominated the other possibility is to solve today the problem obtained by replacing the uncertain disagreement point by its expected value this represents the cost of conflict evaluated today and to solve the resulting problem today this second option has the advantage of yielding paretoundominated compromises provided of course that agents would in the case of no uncertainty select such compromises but unfortunately it may make one of the agents worse off than under the first option in order to ensure that all agents agree to reaching a compromise today we require that the second option always pareto dominate the first one we show that disagreement point concavity when used in conjunction with three standard properties that are satisfied by virtually all of the solutions commonly discussed

health insurance subsidies and deductible choice evidence from regional variation in subsidy schemes the extent to which premium subsidies can influence health insurance choices is an open question in this paper we explore the regional variation in subsidy schemes in switzerland designed as either in kind or cash transfers to study their impact on the choice of health insurance deductibles using health survey data and a difference in differences methodology we find that in kind transfers increase the likelihood of choosing a low deductible plan by approximately 4 percentage points or 7 our results indicate that the response to in kind transfers is strongest among women middle aged and unmarried individuals which we explain by differences in risk taking behavior health status financial constraints health insurance and financial literacy we discuss our results in the light of potential extra marginal effects on the demand for health care services which are however not supported by our data

choice under uncertainty problems solved and unsolved ffifteen years ago the theory of choice under uncertainty could be considered one of the success stories of economic analysis it rested on solid axiomatic foundations it had seen important breakthroughs in the analytics of risk risk aversion and their applications to economic issues and it stood ready to provide the theoretical underpinnings for the newly emerging information revolution in economics 1 today choice under uncertainty is a field in flux the standard theory is being challenged on several grounds from both within and outside economics the nature of these challenges and of our profession s responses to them is the topic of this paper

egalitarian solutions and uncertain disagreement points abstract we consider bargaining problems with uncertain disagreement points we search for solutions providing agents the incentive to reach agreements before the uncertainty is resolved we identify the weighted egalitarian solutions as being the only ones in the family of directional solutions characterized in an earlier paper chun and thomson 1987 to satisfy three alternative lists of complementary conditions we also show that on the class of coalitional form games the kalai samet 1985 extension of the egalitarian solutions does not provide this incentive for early agreement

learning to like what you have explaining the endowment effect the endowment effect describes the fact that people demand much more to give up an object than they are willing to spend to acquire it the existence of this effect has been documented in numerous experiments we attempt to explain this effect by showing that evolution favors individuals whose preferences embody an endowment effect the reason is that an endowment effect improves one s bargaining position in bilateral trades we show that for a general class of evolutionary processes strictly positive endowment effects will survive in the long run

sincere and sophisticated players in an equal income market abstract we study the simultaneous direct revelation mechanism associated with each equal income competitive social choice function in the allocation of objects and money among sincere and strategic agents strategic agents take advantage of sincere agents they non cooperatively coordinate on the equal income competitive allocations for the true preferences that are pareto undominated for them within the set of equal income competitive allocations sincere agents are protected to some extent however their welfare is usually above their maximin payoff

monotonic solutions to general cooperative games etude de jeux cooperatifs qui sont des jeux a plusieurs joueurs mis sous la forme de coalition dans lesquels l utilite n est pas supposee etre transferable

preference reversals the impact of truth revealing monetary incentives researchers vigorously debate the impact of incentives in preference reversal experiments do incentives alter behavior and generate economically consistent choices lichtenstein and slovic 1971 document inconsistencies reversals in revealed preference in gamble pairs across paired choice and individual pricing tasks the observed pattern is inconsistent with stable underlying preferences expressed with simple errors lichtenstein and slovic 1973 and grether and plott 1979 introduce incentives but aggregate reversal rates change little these results fostered numerous replications and assertions that models of non stable preferences are required to explain reversals contrary to this research we find that incentives can generate more economically consistent behavior our reevaluation of existing experimental data shows that incentives have a clear impact by better aligning aggregate choices and prices the effect is sufficiently large that with truth revealing incentives a stable preferences with error model not only explains behavior but fits the data as well as any model possibly could

the conditional auction mechanism for sharing a surplus a first bid auction to allocate the leadership role is used to choose a public decision and a balanced set of transfers the mechanism is shown to implement an equal sharing of the surplus above the average utility level at the equilibrium an agent s message reveals the other agent s utility when only two players are involved and the exact value of the joint surplus a variety of other contexts allow for the construction of similar auction like mechanisms displaying the same mirror image effect

more laboratory evidence on the disparity between willingness to pay and compensation demanded abstract recent experimental work showing a disparity between willingness to pay for and compensation demanded to give up lottery tickets is contrary to economists ideas about rationality presented here are the results of experiments in which subjects participate in second price auctions to indicate willingness to pay and compensation demanded for lottery tickets that have fixed odds of winning or losing money when the auction institution used has truthful revelation of preferences as the dominant strategy and that strategy is announced to subjects the difference between the measures of value decreases significantly the within subject comparison design provides a more discriminating measure of behavior than between subject comparison designs used previously

health plan choice and the utilization of health care services the effect of health plan membership on the utilization of health care services is of interest to both consumers and policymakers often estimation of that effect is difficult because data are nonexperimental and the dependent variable exhibits a high proportion of zeros the authors propose a model of utilization that addresses both problems after controlling for chronic illness and other observed variables they find no evidence of further selectivity bias in equations for physician contacts and inpatient days the authors estimates of the effect of health plan membership on utilization of services are similar to those from experimental data coauthors are roger feldman steven cassou and michael finch copyright 1991 by mit press

bargaining with noisy delegation principals delegate to an agent in the context of the nash bargaining model but communicate instructions to their agents imperfectly numerical methods are used to find a unique equilibrium in the principals strategies agents fail to agree with a positive probability invoking a secondary mechanism for the resolution of disputes such as arbitration comparative statics are informative the risk sensitivity of the nash bargaining solution is mitigated but not eliminated as uncertainty goes to zero a stable unique limiting equilibrium is identified from the set of multiple equilibria identified in a model in which principals delegate without trembles

weighted randomized dictatorship and the asymmetric nash solution a characterization of the asymmetric nash bargaining solution is presented in it a weighted randomized dictatorship axiom plays a central role

venture theory a model of decision weights several theories suggest that people replace probabilities by decision weights when evaluating risky outcomes this paper proposes a model called venture theory of how people assess decision weights it is assumed that people first anchor on a stated probability and then adjust this by mentally simulating other possible values the amount of mental simulation is affected by the absolute size of payoffs the extent to which the anchor deviates from the extremes of 0 and 1 and the level of perceived ambiguity concerning the relevant probability the net effect of the adjustment i e up or down vis i vis the anchor reflects the relative weight given in imagination to values above as opposed to below the anchor this in turn is taken to be a function of both individual and situational variables and in particular the sign and size of payoffs cognitive and motivational factors therefore both play important roles in determining decision weights assuming that people evaluate outcomes by a prospect theory value function kahneman and tversky 1979 and are cautious in the face of risk fourteen predictions are derived concerning attitudes toward risk and ambiguity as functions of different levels of payoffs and probabilities the results of three experiments are reported whereas only a subset of the model s predictions can be tested in experiment 1 all fourteen are tested in experiments 2 and 3 using hypothetical and real payoffs respectively several of the model s predictions are not supported in experiment 2 but almost all are validated in experiments 1 and 3 the failures relate to the exact nature of probability payoff interactions in attitudes toward risk and ambiguity for losses the theory and results are discussed in relation to other experimental evidence future tests of the theory alternative models of risky choice and implications of venture theory for explaining further phenomena

a comparison of alternative models for the demand for medical care we have tested alternative models of the demand for medical care using experimental data the estimated response of demand to insurance plan is sensitive to the model used we therefore use a split sample analysis and find that a model that more closely approximates distributional assumptions and uses a nonparametric retransformation factor performs better in terms of mean squared forecast error simpler models are inferior either because they are not robust to outliers e g anova anocova or because they are inconsistent when strong distributional assumptions are violated e g a two parameter box cox transformation

credible sales mechanisms and intermediaries we consider a seller who faces several buyers and lacks access to an institution to credibly close a sale if buyers anticipate that the seller may negotiate further they will prefer to wait before making their best and final offers this in turn induces the seller to bargain at length with buyers even if doing so is costly when the seller s cost of soliciting another round of offers is either very large or very small the seller credibly commits to an auction and experiences negligible bargaining costs otherwise there may be several rounds of increasing offers and significant seller losses in these situations an intermediary with a sufficiently valuable reputation and or weak marginal incentives regarding price can create value by credibly committing to help sell the object without delay

risk equalization and voluntary deductibles a complex interaction the presence of voluntary deductibles in the swiss and dutch mandatory health insurance has important implications for the respective risk equalization systems in a theoretical analysis we discuss the consequences of equalizing three types of expenditures the net claims that are reimbursed by the insurer the out of pocket expenditures and the expenditure savings due to moral hazard reduction equalizing only the net claims as done in switzerland creates incentives for cream skimming and prevents insurers from incorporating out of pocket expenditures and moral hazard reductions into their premium structure in an empirical analysis we examine the effect of self selection and conclude that the swiss and dutch risk equalization systems do not fully adjust for differences in health status between those who choose a deductible and those who do not we discuss how this may lead to incentives for cream skimming and to a reduction of cross subsidies from healthy to unhealthy individuals compared to a situation without voluntary deductibles