minimum effort coordination games stochastic potential and logit equilibrium abstract this paper revisits the minimum effort coordination game with a continuum of pareto ranked nash equilibria noise is introduced via a logit probabilistic choice function the resulting logit equilibrium distribution of decisions is unique and maximizes a stochastic potential function in the limit as the noise vanishes the distribution converges to an outcome that is analogous to the risk dominant outcome for 2 2 games in accordance with experimental evidence logit equilibrium efforts decrease with increases in effort costs and the number of players even though these parameters do not affect the nash equilibria journal of economic literature classification numbers c72 c92

communication networks in markets abstract this paper proposes and tests experimentally a dynamic model of bargaining to analyze decentralized markets where buyers and sellers obtain information about past deals through their social network there is a unique equilibrium in which every individual obtains the same outcome independent of their network position and this outcome depends on the peripheral least connected individuals in the network the main testable predictions are that networks with high density and or low variability in the number of connections across individuals allow their members to obtain a better deal these predictions are tested in a lab experiment through 4 treatments that vary the network that subjects are assigned to the results of the experiment lend support to the theoretical predictions subjects converge to an outcome that is independent of their network position and they fare better if they are assigned to a network that is dense and or has low variability in number of connections across members

unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

public goods in networks this paper considers incentives to provide goods that are non excludable along social or geographic links we find first that networks can lead to specialization in public good provision in every social network there is an equilibrium where some individuals contribute and others free ride in many networks this extreme is the only outcome second specialization can benefit society as a whole this outcome arises when contributors are linked collectively to many agents finally a new link increases access to public goods but reduces individual incentives to contribute hence overall welfare can be higher when there are holes in a network

structural transformation and the deterioration of european labor market outcomes this paper examines hours worked in continental europe and the united states from 1956 to 2003 the empirical work establishes two results first hours worked in europe decline by almost 45 percent compared to the united states over this period second this decline is almost entirely accounted for by the fact that europe develops a much smaller market service sector than the united states a simple model of time allocation is used to understand these patterns i find that relative increases in taxes and technological catch up can account for most of the differences between the european and american time allocations over this period

the desirability of in kind transfers in the presence of distortionary taxes a standard argument in welfare economics maintains that private goods should not be publicly provided because cash transfers are always superior to in kind transfers however this conclusion does not hold in second best economies a strong case for the desirability of in kind transfer in the presence of distortionary taxes has been made in various recent contributions here we survey the arguments provided in these papers using a common theoretical framework which enables us to present more clearly the similarities and the differences among the various papers the use of a common formal model helps us to show how the rationale for public provision of private goods is sensitive to the form of the tax system it also helps us to provide an explanation why mandatory and non mandatory in kind transfer schemes have the same effects on social welfare finally we offer some considerations on the relevance of the theory of in kind transfers for policy action jel classification number h42

network structure and strategic investments an experimental analysis abstract this paper experimentally analyzes the effect of network structures on individuals decisions in a game of strategic substitutes the theoretical basis for our experiment is the model of bramoulle and kranton 2007 as predicted we find that individuals are able to coordinate on equilibria but that coordination strongly depends on the network structure despite frequent coordination failures in graphs of size n 4 equilibrium play seems easier on network architectures with high low density and low high centrality if play converges it almost exclusively does so towards the predicted equilibria theoretical results with respect to welfare are also confirmed next to global graph structural properties we also explore the effects of local and individual factors we find that behavior on networks is affected by the number of direct neighbors but not by individuals risk attitudes apparently the global and the local structure of a network does not leave much explanatory room for individual effects that pertain to risk taking

optimal redistribution with productive social services publicly provided private goods are conventionally considered consumer goods departing from this perspective we analyze the public provision of inputs that improve household productivity e g education and childcare in a two class economy with distorting taxation public provision is always welfare improving with respect to pure taxation given that the public input directly affects household productivity moreover the case for public provision strengthens as households heterogeneity in input demand fades out contrary to consolidated results in the literature the features of optimal provision schemes depend on the nature of publicly provided input namely if it substitutes household productive capacity or just helps households to exploit it

technology policy interaction in frictional labour markets does capital embodied technological change play an important role in shaping labour market outcomes to address this question we develop a model with vintage capital and search matching frictions where irreversible investment in new vintages of capital creates heterogeneity in productivity among firms matched as well as vacant we demonstrate that capital embodied technological change reduces labour demand and raises equilibrium unemployment and unemployment durations in addition the presence of labour market regulations unemployment benefits payroll taxes and firing costs exacerbates these effects thus the model is qualitatively consistent with some key features of the european labour market experience relative to that of the u s it features a sharper rise in unemployment and a sharper fall in the vacancy rate and the labour share a calibrated version of our model suggests that this technology policy interaction could explain a sizeable fraction of the observed differences between the u s and europe copyright 2007 wiley blackwell

the role of product market regulations in the process of structural change abstract the sectoral allocation of labor differs considerably across developed economies even in the presence of similar patterns of structural change a general equilibrium model that captures the stylized facts of structural change is presented in this framework economy wide product market regulations hinder the development of dynamic sectors such as service industries this is consistent with the negative cross country relationship between product market regulations and the service employment share discussed in the paper additionally the model suggests that higher service prices and rents in regulated economies reduce labor supply providing a rationale for the negative association between product market regulations and the employment rate previously found in the literature

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

social hierarchies a laboratory study on punishment patterns across networks we experimentally study punishment patterns across network structures and their effect on cooperation in a repeated public goods setting subjects can only observe and punish their neighbors centralized structures like the star network outperform other incomplete networks and reach contribution levels like the ones observed in a complete network our results suggest that hierarchical network structures with a commonly observed player benefit more from sanctions not because central players punish more but because they follow and promote different punishment patterns while quasi central players in other incomplete architectures like the line network retaliate and get trapped in the vicious circle of antisocial punishment central players in the star network do not punish back increase their contributions when sanctioned by peripheral players and sanction other participants in a prosocial manner our results illustrate recent field studies on the evolutionary prevalence of hierarchical networks we document a network based rationale for this positive effect in an identity free fully anonymous environment jel c72 c91 c92 d90 h41

asymmetric network monitoring and punishment in public goods experiments abstract we extend the recent experimental literature on incomplete punishment networks in linear public goods games in these games we use an exogenous network to restrict both monitoring and the set of feasible punishment flows in addition to two baseline structures the complete network and the circle network we examine a novel asymmetric network in which both punishment responsibility and exposure differ across players average contributions are significantly lower in the asymmetric network driven entirely by the under monitored player who faces only one potential punisher we formulate and examine the hypothesis that asymmetry among a player s potential punishment targets may lead to discriminatory patterns of punishment in particular players might wish to punish targets for whom they are solely responsible discriminately more than targets for whom they share responsibility the experimental data do not support this hypothesis although they do suggest a compelling explanation as to why specifically we find that the under monitored player in the network retaliates against previous punishment significantly more often than others in the group which deters their only potential punisher from issuing stronger sanctions thus an additional complication of asymmetry in the network is that it may lead to more instances of anti social retaliation inhibiting the effectiveness of the decentralized punishment institution

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

measuring strategic uncertainty in coordination games this paper proposes a method to measure strategic uncertainty by eliciting certainty equivalents analogous to measuring risk attitudes in lotteries we apply this method by conducting experiments on a class of one shot coordination games with strategic complementarities and choices between simple lotteries and sure payoff alternatives both framed in a similar way despite the multiplicity of equilibria in the coordination games aggregate behaviour is fairly predictable the pure or mixed nash equilibria cannot describe subjects behaviour we present two global games with private information about monetary payoffs and about risk aversion while previous literature treats the parameters of a global game as given we estimate them and show that both models describe observed behaviour well the global game selection for vanishing noise of private signals offers a good recommendation for actual players given the observed distribution of actions we also deduce subjective beliefs and compare them with objective probabilities

principles of network development and evolution an experimental study this paper reports on an experimental investigation of the evolution of networks and the individual decision making processes that guide it inasmuch as there is no history of experimental work on network formation part of the paper is devoted to the formulation of problems that can be examined experimentally the results are that networks composed of decentralized decision makers are capable of overcoming complex coordination and learning problems and converge to stationary when it does not occur significant and persistent inefficiencies can result the models of equilibration based on the principle of nash equilibrium are more reliable than models based on the alternative principles of efficiency seeking or focalness of the network configuration however individual decision making within networks is not in accordance with the simple decision rules of nash best response instead we observed complicated strategies that appear to trade short term profits in order to signal to and teach other agents the strategies required for long term profit maximization

redistributive effects of transfer programmes in the united kingdom we discuss the redistribution effects of transfer using a conditional choice general equilibrium model we calibrate it to uk data for the early 2000s results indicate that a money metric measure of the welfare value of transfer received by the bottom decile of uk households equals 17 of the cash transfer

information acquisition and exchange in social networks a central feature of social networks is information sharing the internet and related computing technologies shape the relative costs of private information acquisition and forming links with others this article presents an experiment on the effects of changing costs we find that a decline in relative costs of linking makes private investments more dispersed and gives rise to denser social networks aggregate investment falls but individuals access to investment remains stable due to increased networking the overall effect is an increase in individual utility and aggregate welfare

unemployment responses to skill biased technology shocks the role of labour market policy do skill biased shocks that increase the spread of labour productivities interacting with different policy regimes explain the rise in unemployment in europe relative to the united states in the 1980s and 1990s the hypothesis is an implication of a version of the mortensen and pissarides 1994 model of equilibrium unemployment which allows for worker heterogeneity a calibrated version of the model implies that a similar unemployment increase would have occurred in the united states over this period given changes in relative productivity by education implied by observed wage changes had unemployment compensation and employment protection policies been at european levels

conventions and local interaction structures experimental evidence we present a series of experimental coordination games with a payoff dominant and a risk dominant nash equilibrium we examine in how far local interaction structures have effects on players strategy choices our three major observations are the following first local interaction with open neighborhoods along a circle leads to less coordination on the payoff dominant equilibrium than interaction in closed neighborhoods see also keser ehrhart and berninghaus economics letters 1998 second when players are allocated around a circle the neighborhood size has in the long run no effect on the players strategy choices third with the same neighborhood size players allocated on a lattice tend less than players allocated around a circle to coordinate on the payoff dominant equilibrium this is true although the players are given exactly the same instructions

positional concerns and social network structure an experiment abstract we experimentally study the positional concerns of individuals embedded in social networks in the game individuals compete for positional advantage with their direct neighbors by purchasing a positional good the nash equilibrium consumption is determined by the katz bonacich centrality of the individual s network position while the efficient outcome requires a lower consumption level for most network positions the gameplay converged to the nash equilibrium except for local centers that consumed less of the positional good than the nash prediction despite this the consumption of the positional good increased in the individual s centrality the evolution of the gameplay was explained by the myopic best response dynamics model

expectations network centrality and public good contributions experimental evidence from india do individuals in a position of social influence contribute more to public goods than their less connected partners can we motivate these influential individuals by disclosing how others expect them to act to answer these questions we play a public good game on a star network the experimental design is such that efficiency and equality considerations should motivate central players to contribute more than others using a subject population familiar with contributions to public goods on social networks we find that central players contribute just as much as the average of other players leading to a large loss of efficiency when we disclose the expectations of other players we find that central players often adjust their contributions to meet the expectations of the group expectations disclosure leads to higher contributions in groups that have weak social ties outside of the experiment in groups where ties are strong it has no significant effect this evidence casts doubt on the idea that individuals who by their social position can contribute more effectively to the public good rise to the challenge by contributing more than others in some but not all social groups these individuals can be motivated to increase contributions by disclosing the expectations of others

altruists egoists and hooligans in a local interaction model the authors study a population of agents each of whom can be an altruist or an egoist altruism is a strictly dominated strategy agents choose their actions by imitating others who earn high payoffs interactions between agents are local so that each agent affects and is affected by only his neighbors altruists can survive in such a world if they are grouped together so that the benefits of altruism are enjoyed primarily by other altruists who then earn relatively high payoffs and are imitated altruists continue to survive in the presence of mutations that continually introduce egoists into the population copyright 1998 by american economic association

does child labour displace schooling evidence on behavioral responses to an enrollment subsidy this brief summarizes the results of a gender impact evaluation study entitled does child labour displace schooling evidence on behavioral responses to an enrollment subsidy conducted between 1995 and 1996 in bangladesh the study observed that the subsidy increases schooling but its effect on child labour is ambiguous the subsidy increased schooling by far more than it reduced child labour substitution effects helped protect current incomes from the higher school attendance induced by the subsidy substitution effects helped protect current incomes from the higher school attendance induced by the subsidy the reduction in the incidence of child labour by boys girls represents about one quarter eighth of the increase in their school enrollment rate

coordination and local interaction experimental evidence abstract subjects repeatedly played a three player coordination game with a payoff dominant and a risk dominant equilibrium subjects interacting in fixed groups quickly coordinated on the payoff dominant equilibrium while those interacting with their neighbors around a circle eventually coordinated on the risk dominant equilibrium

two views on the deterioration of european labor market outcomes this paper challenges the consensus view on the deterioration of european labor market outcomes relative to the united states when looking at employment to population ratios rather than unemployment rates i find that the deterioration begins in the mid 1950s and continues through the mid 1990s i also present evidence to suggest that the key to understanding this deterioration is to understand why europe has not developed a market service sector similar to the united states jel e2 j2

experimental games on networks underpinnings of behavior and equilibrium selection in this paper we describe a series of laboratory experiments that implement specific examples of a general network structure specifically actions are either strategic substitutes or strategic complements and participants have either complete or incomplete information about the structure of a random network since economic environments typically have a considerable degree of complementarity or substitutability this framework applies to a wide variety of settings we examine behavior and equilibrium selection the degree of equilibrium play is striking in particular with incomplete information behavior closely resembles the theoretical equilibrium whenever this is unique when there are multiple equilibria general features of networks such as connectivity clustering and the degree of the players help to predict informed behavior in the lab people appear to be strongly attracted to maximizing aggregate payoffs social efficiency but there are forces that moderate this attraction 1 people seem content with in the aggregate capturing only the lion s share of the efficient profits in exchange for reduced exposure to loss and 2 uncertainty about the network structure makes it considerably more difficult to coordinate on a demanding but efficient equilibrium that is typically implemented with complete information

repeated interaction and the public provision of private goods the literature suggests that governments can use in kind transfers to design efficient and targeted redistribution schemes if individual incomes are not directly observable we investigate the extent to which the self selection property of in kind transfers carries through if redistributive transfers are made repeatedly in a two period setting the government may gain information about the individuals incomes in the first period and exploit this information for making targeted transfers in the second period this however also triggers changes in the individuals behavior if the government can commit to its future policy the least cost policy may involve randomization between cash and in kind transfers without commitment the dynamic setting works against the government s interest it may no longer be able to use in kind transfers to generate information about the individuals types jel classification h42 h2

network effects on strategic interactions a laboratory approach abstract we examine the effect of interaction structure network on two classes of collective activities herding and shirking respectively referring to the situation where a player s incentive to take a certain action increases and decreases if more of her network neighbors follow the same action in our experiment we find that subjects do not act according to theoretical equilibrium and their frequencies of making the socially beneficial choice in herding and shirking games are inversely influenced by the number of network neighbors they have moreover the observed local network effect is stronger in shirking games while the global network effect is more significantly present in herding games we explain the behavioral regularities through a hybrid learning model which extends sewa learning into a network context as such our learning model provides a foundation for the observed dynamics disequilibrium behavior as well as the local and global network effects